4 Types of Tax Deductions You Probably Don't Know About
IMAGE SOURCE: PIXABAY.
To itemize or not to itemize? That's one of the most important decisions you'll make when preparing your tax return. Of course, you can't make a good decision without understanding itemized deductions and knowing which ones are available for you to claim. Most taxpayers know about the mortgage interest and medical expense deductions, and hopefully you're familiar with the investment expense deduction.
But itemized deductions don't stop there. Here are some less common deductions that you might be able to take.
1. Subscriptions
Believe it or not, you can deduct the cost of subscriptions to professional and/or investment publications. This deduction covers newspapers, magazines, newsletters, journals, and even internet subscriptions. However, there are a few caveats.
First, this deduction is subject to the 2% floor, which means that you subtract 2% of your adjusted gross income (AGI) for the year from your deduction (and all other itemized deductions with the same floor). The remainder is the amount you can claim for those deductions.
Second, any professional publications you deduct must be related to your job in some way. The connection can be somewhat tenuous -- for example, a freelance writer could deduct the cost of subscriptions to magazines to which the writer plans to sell articles -- but there has to be some connection that you can point out to the IRS.
If you subscribe to something related to a hobby, you can deduct the cost, but only to the extent of your income from that hobby. If you're a golfer and you earned $500 from winning a local tournament, you could deduct up to $500 for your subscriptions to golfing magazines.
Investment subscriptions, on the other hand, are deductible as investment expense regardless of your job or hobby status.
2. IRA Custodial Fees
Speaking of investment expenses, you can deduct the administrative fees you pay for your individual retirement account, or IRA. You can use this deduction whether you have a traditional or Roth IRA. This will only be an option if you pay your administrative fees as a separate transaction, in which case you can deduct the payment subject to the 2% AGI floor. Many trustees simply subtract the administrative fees from the balance of your IRA each year. In that situation, you can't use it as an itemized deduction.
3. Job search expenses
Looking for a new job? Good news: You can deduct all your expenses related to job hunting, whether or not you actually get the job. As usual, the IRS puts a few limitations on this deduction.
The job you're looking for has to be in the same field as your current (or last) job. There can't be what the IRS calls a "long break" between when you leave your last job and when you start looking for a new one. The agency doesn't define that time frame, but it's safe to say that if you've been out of the workforce for years, then your job search expenses won't be deductible this time. And you can't deduct the expenses of looking for your first-ever job. Also, this deduction is subject to the 2% AGI floor limitation.
Assuming you meet all of those criteria, you can deduct expenses such as employment agency fees, preparing and sending out resumes, transportation expenses (track your mileage!), and even long-distance travel if your primary purpose in traveling is looking for a job. Hey, who wouldn't want to work in Fiji? Just be sure to spend the majority of your trip pursuing a job, and the IRS will help to pay your way.
4. Tax expenses
This is probably the most "meta" tax deduction of all: Yes, you can deduct certain taxes you've paid from your taxable income. First, you can deduct any state and local taxes you pay, including real estate taxes and other property taxes, on your federal tax return. Note that you can deduct state income taxes orstate sales taxes, but not both. These deductions are not subject to the 2% floor; you get to deduct the full amount. Foreign income taxes and real estate taxes are also fully deductible.
Second, you can deduct any fees you pay to have your tax return professionally prepared. Or, if you prepare your own taxes, you can deduct the cost of the software you use and any tax publications you purchased to help you figure out your return. These deductions are subject to the 2% AGI floor, and you can only deduct the expenses related to the return's tax year (so in 2017, you would deduct tax preparation fees related to the 2016 tax return).
Finally, you can deduct any flat-rate occupational taxes you pay at the local level for the privilege of doing your job, or of working in that location.
Does itemizing make sense for you?
After you've considered all available deductions, it might make more sense for you to just take the standard deduction. The majority of taxpayers choose to go this route, because it's easier and will often lead to a greater overall deduction. However, if you do a rough calculation of your itemized deductions and find that they exceed the standard deduction by a significant amount, then by all means go for itemizing. Even the IRS agrees that you shouldn't pay more taxes than you owe.
The $15,834 Social Security bonus most retirees completely overlook If you're like most Americans, you're a few years (or more) behind on your retirement savings. But a handful of little-known "Social Security secrets" could help ensure a boost in your retirement income. For example: one easy trick could pay you as much as $15,834 more... each year! Once you learn how to maximize your Social Security benefits, we think you could retire confidently with the peace of mind we're all after.Simply click here to discover how to learn more about these strategies.
The Motley Fool has a disclosure policy.