When tax time rolls around, you've got to grab every break you can. Missing out on tax breaks means you're overpaying the IRS, which is not something even the IRS itself recommends. Unfortunately, some quite large tax breaks are practically unknown to many taxpayers. Here's a sampling of some of the deductions and credits you might be eligible to claim without even realizing it.
1. Moving expenses
Yep, the IRS will actually pay you to move -- but only if you do so for job-related reasons. If you started a new job, shifted to a new business location for your current job, or started a new business, you may be able to claim a deduction for your moving expenses related to the change. There are three basic requirements for claiming this deduction: you have to move within one year of the job change, your new workplace has to be at least 50 miles further from your old home then the old workplace was, and you must work full time in or near the new location for at least 39 weeks during the next 12 months.
Assuming you meet these requirements, you can claim your moving expense deduction by filling out IRS Form 3903 and listing the results on line 26 of your Form 1040.
2. Student loan interest paid by your parents
If your parents are making the payments on your student loans for you, you can deduct the interest they paid on those loans on your tax return as though you were the one who paid it. However, this only works if your parents aren't claiming you as a dependent. If they are, they'll be deducting that student loan interest on their own tax return -- and sadly, double-dipping isn't allowed by the IRS.
You can deduct up to $2,500 of student loan interest on your tax return by listing it on line 33 of the Form 1040 or line 18 of the Form 1040A. You or your parents should receive a tax form from the lender that lists the amount of interest you paid for the year; simply transfer this total to the appropriate line on your tax return.
3. Mortgage points deduction
Mortgage points are essentially prepaid interest, so you can deduct them as such as an itemized deduction on Schedule A. However, you'll have to meet a few requirements: the mortgage in question must be on your main residence (the one you live in most of the time), mortgage points have to be an established business practice in your area and you can't have paid an excessive amount of them, and the amount must be listed as points on your settlement statement. You can deduct points both on loans used to purchase and loans used to improve your main residence.
Points that show up on your lender's Form 1098 (they'll usually be in Box 6) go on line 10 of the Schedule A; if the points aren't listed on your Form 1098 for the year, put them on line 12 of the Schedule A instead.
4. Child and Dependent Care Credit
If you paid someone to look after your kids or another dependent (such as an elderly parent) you can claim a tax credit for the expense. The credit can be up to $3,000 for care for one person, or $6,000 for care for two or more people. Where this credit gets really interesting is with taxpayers whose employers reimburse them for dependent care. You see, dependent care reimbursement accounts through an employer are capped at $5,000, while the Child and Dependent Care Credit is capped at $6,000. That means if you have more than $5,000 worth of expenses and get employer reimbursement, you can claim up to $1,000 of the overflow expense using the Child and Dependent Care Credit. For example, if you have two kids attending day care and you paid $7,000 in day care expenses last year, your employer can reimburse you for up to $5,000 of those expenses and you can claim an additional $1,000 of expenses using this tax credit; sadly, you won't get a credit for the remaining $1,000 of expenses.
If you qualify for the Child and Dependent Care Credit, you'll need to fill out IRS Form 2441 and transfer the results to your Form 1040 or Form 1040A per the instructions. You can use Part III of Form 2441 to list any reimbursements you received from your employer.
These tax breaks are just a sampling of the huge number of deductions and credits available to various taxpayers. If you're serious about maximizing your tax breaks, consider hiring a qualified professional (meaning a CPA or enrolled agent) to prepare your tax return for you. Such professional will be far more familiar with obscure tax breaks than you are. And have I mentioned that tax preparation fees are deductible?