Commonly Overlooked Tax Deductions and Credits: A Reminder from the Illinois CPA Society

CHICAGO, February 9, 2018 While the new tax laws will eliminate many deductions beginning in 2018, taxpayers can still minimize their tax liability by taking advantage of available credits and deductions this filing year. The Illinois CPA Society wants to make sure you are aware of these commonly overlooked items when preparing your 2017 taxes.

Charitable donations deductions – Contributions of cash and goods (such as clothing or furniture) to qualified charities may be eligible as tax deductions. A record of the transaction, such as a canceled check or receipt from the charitable organization, is required for tax reporting. Smaller contributions, such as purchasing stamps for charitable fundraiser mailings or buying ingredients to make treats for a charity bake sale may also count for out-of-pocket charitable donations, if you have receipts and/or a tax letter from the charitable organization.

Job search tax deductions – Taxpayers may deduct certain expenses incurred while looking for a job in their same line of work – not in a new field of employment. Expenses covering phone calls, resume preparation and career counselling may be deductible. You don’t have to be unemployed to claim some job search costs and only expenses that are greater than 2 percent of your current income may be deducted.

Home mortgage deductions – Many taxpayers already take advantage of deducting mortgage interest on their primary residence and up to certain limits on a second home. However, mortgage insurance premiums may also be written off as mortgage interest paid.

Individual retirement account (IRA) deductions – Tax-exempt contributions of up to $5,500 ($6,500 for those age 50 and older) to traditional IRAs can be made for 2017 tax filings right up until the filing deadline on April 17.

Choice of standard or itemized deductions – Instead of taking a standard federal deduction, taxpayers may choose to itemize deductions to potentially gain a bigger tax break. If declining a standard deduction, taxpayers may itemize their state income taxes paid or state sales taxes paid, but not both. Also, itemizing state sales taxes can be calculated based on income.   

Student loan interest deductions – Taxpayers with a modified adjusted gross income of less than $80,000 ($165,000 if married filing jointly) can deduct up to $2,500 of student loan interest. It must be a qualified student loan for you, your spouse or a dependent. Loans from a qualified employer or private loans from family or friends are not eligible.

Self-employed health coverage deductions – Taxpayers who are self-employed or own their own businesses may deduct their health insurance premiums. Those who qualify for Medicare coverage may also deduct supplemental policies if they pay for additional Medicare coverage. To qualify for these deductions, you cannot be covered by any other health insurance policy.

Home office deductions – Eligible taxpayers can deduct $5 for every square foot of workspace used up to a maximum of 300 square feet. If you use a spare bedroom measuring 270 square feet (18’ x 15’) exclusively as a home office – multiply 270 by $5 for total home office tax deduction of $1,350. Another room used part of the time as a home office, such as a kitchen, would not qualify. What’s often overlooked is space in the basement or garage used exclusively for records, tools or product inventory storage.

Teacher tax deductions – Educators who often reach into their own pockets to buy classroom supplies may qualify for up to $250 in tax deductions.

Dependent child tax credits – A $1,000 maximum tax credit per child age 17 or younger is available for qualifying taxpayers.

Child and dependent care tax credits – Taxpayers who paid for childcare while working or looking for employment may deduct some of those expenses based on their adjusted growth income (AGI). Dependent children must be under 13-years-old at the time of care to qualify.

Lifetime Learning credits – Taxpayers and family members may earn a tax credit of 20 percent of tuition expenses, with a maximum of $2,000 in tax credits on the first $10,000 of college tuition expenses. Qualifying individuals, spouses or dependents must be enrolled at an eligible educational institution and the taxpayer claiming the deduction must be responsible for paying college expenses.

Green energy tax credits – Those who bought and installed solar energy panels (also known as photovoltaic systems) or solar water heaters for their homes in 2017 may be eligible for energy tax credits. Certain requirements must be met to qualify. For example, equipment must be used for a “qualifying property” – not including swimming pools or hot tubs. More information is available by visiting www.energystar.gov.

CPAs have the answers

Everyone’s tax situation is unique. A CPA can help determine if you’re taking all your entitled tax breaks. The Illinois CPA Society has a free “Find a CPA” online directory to help you locate a tax expert in your area that best meets your needs.

 

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Eric Scott
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