Three Commonly Overlooked Tax Deductions and Credits
Between income, payroll, property and sales taxes paid, tax, in many cases, adds up to be our leading expense. While some of these taxes are simply fixed percentages, your income tax can effectively be reduced through the application of relative deductions and credits. As we enter the last month of the traditional tax filing period, here are some of the most commonly overlooked deductions and credits:
I cannot begin to tell you how many times I have spoken to individuals and had them tell me they did not provide medical expenses, because they “never meet the minimum requirement”. While it is true that the federal government has a high deductibility threshold which makes it very difficult for most to receive a benefit from deducting medical expenses, the state of New Jersey has a much lower threshold. Additionally, health insurance premiums withheld from your paycheck are deductible as medical expenses in New Jersey. I have found that most individual taxpayers do actually benefit from deducting medical expenses, albeit at the state level. Why pay any more tax dollars than you are legally obligated to? Be sure to tally up those medical expenses and provide them to your tax preparer.
While most individuals will provide me with total charitable contributions for a given tax year, often overlooked are those non-cash contributions which were made. Next time you pack those bags of clothes or household items to take over to the local Salvation Army or Goodwill, be sure to compile a list of all the items you are donating. Organizations like the Salvation Army and Goodwill provide extensive “Donation Value Guides” on their websites, which can be used to reasonably estimate the value of your contributions.
The child and dependent care credit is a tax break specifically for working people. If you are paying someone to take care of your children while you work, you may be eligible for the child and dependent care credit. Unlike the previous two items, this is a tax credit, rather than a tax deduction. A deduction simply reduces the amount of income that you must pay tax on, whereas a credit will reduce your tax liability, dollar for dollar. Additionally, this credit, if applicable, can be claimed regardless of your income level. While the credit percentage does get lesser with rising income levels, it will not get phased out entirely.
For any additional information relative to the content above, or for tax filing assistance, please feel free to email me directly at firstname.lastname@example.org or call my office at 908-939-8070.
Michael Lamela, CPA | 11/14/2017