13 commonly missed deductions you should be aware of this tax season
By now you no doubt have been receiving what may seem a never ending stream of tax information needed to file your annual tax return. Whether you box up all the information and pass it to your accountant or do it yourself, the process itself can be time consuming and frustrating, which can lead to mistakes.
This is not meant to be a complete list, but some of the more common oversights. If this was a complete list, it would probably be as long as the federal tax code itself, and I am not sure I could keep your attention for that long.
Commonly missed deductions:
- Job search expenses
- Relocation costs for new employment
- Military reservist travel expenses
- State tax paid in 2012
- Mortgage points / real estate taxes
- Insurance expenses
- Investment advisory fees
- Child-care credit
Contributing as much as you can from your salary to your employer sponsored plan such as a 401(k) or 403(b) is one of the best ways to reduce your adjusted gross income (AGI). For 2013, the maximum amount you can contribute to these plans is $17,500 ($17,000 for 2012) for those under the age of 50 and $23,000 ($22,000 for 2012) for ages 50 and above. If your employer does not offer a plan, you can still make a tax deductable contribution to a traditional IRA. The maximum amount you can contribute to an IRA account is $5,500 ($5,000 for 2012). You still have until April 15 to make a contribution to a traditional IRA.
Most of us will have made some type of charitable donation in the form of cash, appreciated securities or clothing and household items to our local church, favorite charity or fundraiser.
Clothing and household items donated to charity are a bit harder to value for tax purposes. You may want to use valuation software to determine the value of your donations. Doing this may actually calculate a higher value for your donation than you had originally thought.
Finally, the IRS is cracking down on bogus deductions, including donations to a charitable entity, so make sure to follow the proper procedures when making your charitable donations. You will need to confirm the tax-exempt status of the entity receiving your donation and understand what is required of you, the donor. I suggest reading the IRS Publication 1771 for additional clarification.
If you own mutual funds, you may receive periodic dividends as well as capital gains over time. The dollar amount of these distributions are added to your tax basis. Tax basis is the value used when determining the gain or loss when selling the fund. While the mutual fund will normally track the tax basis, the investor is ultimately responsible for the correct calculation of the gain or loss. Make sure you use the tax basis to determine any gain you have or you may end up paying a higher capital gain tax than you actually owe.
Capital loss carryovers
You are allowed to use capital losses to offset capital gains for the year. If you have a net capital loss, you can use up to $3,000 of that loss to offset your income. If you still have an excess loss above $3,000, you can carry that loss forward into future years. The realized losses you carry forward from prior years do not expire, so make certain to use any unused losses that you may have accumulated to offset any gains.
Hire a professional
Lastly, a tax professional can help avoid many of the mistakes or oversights often made. This is especially true if your personal finances are more complex. However, keep in mind that a tax adviser is dependent on the accuracy and quality of the records you keep and the information you provide them.
Brett N. Karras is president of the Karras Company, an independent registered investment adviser with approximately $800 million in assets under management.
- Beware of rental scams involving for-sale...
- The president wants to extend overtime...
- Dave Ramsey says: 3 traps to avoid after...
- These are the 30 best cities in America for a...
- Balancing act: Poll: Family finance concerns...
- Michelle Singletary: A woman's place is on...
- Your commute just got a lot less stressful...
- The slow death of the 9-to-5 workday