Right now, there’s a lot of talk regarding Americans paying their “fair share” to the tax man. And while many issues are up for debate, most parties agree the tax code needs some work going forward.
But as you gather documentation for your 2012 taxes, forget about future tax policy. The most important thing is for you to make the existing tax breaks work in your favor. After all, nobody should pay more taxes than they have to — and if the IRS provides a legal deduction, it’s not sneaky or unfair to take them up on the offer.
The problem is that a convoluted tax code prevents many Americans from finding some deductions even when they are entitled to them. So here are five commonly overlooked deductions that may be worth noting as you prepare your 2012 taxes:
1. “Catch Up” Retirement Deductions: If you’re older than 50 and putting retirement funds into an IRA, or an individual retirement account, you are allowed an extra $1,000 contribution tax free. The limit for younger Americans is $5,000 for tax year 2012, but you get up to $6,000 if you’re older than 50. This deduction is designed to help those close to retirement catch up if they are behind — and considering some polls estimate half of Americans have zilch in retirement savings, you can understand why many need to catch up.
2. Job Hunting Costs: Did you pay fees to an employment placement agency during your job search or join a professional organization to network? Did you travel for an interview out-of-pocket, even if it was just gas and mileage, or spend hundreds on high-priced resume stationery and work samples? All of these are applicable expenses that can be added to your itemized deductions in. Best of all, you don’t have to be unemployed to qualify for many job-hunting tax breaks. Just looking for a job in your present field of employment allows you to reap these IRS benefits. Just make sure you’re being reasonable and that these costs are 100% related to a job search. In other words, a trip to the Super Bowl was not a tax write off just because you fill out an application at Starbucks while you were in New Orleans.
3. Student Loans Paid Off by Someone Else: Since it’s your name on the loan, it’s your deduction — even if your parents cosigned and your parents are making the payment. The only way someone else gets the deduction is if the original loan was wholly in their name and not yours.
4. Glasses and Contacts: Prescription eyeglasses or contact lenses are in the same category on itemized deductions as a wheelchair or a hearing aid. So while it may not seem like a medical expense to buy your reading glasses with pink plastic frames, the IRS will cut you a break. Considering what some of us pay for designer eyewear, this can add up.
5. Out-of-Pocket Charity Expenses: It’s easy to include the documentation from your cash donations. But what about the little things like paint and poster board for a school fundraiser, or the ingredients in your famous green bean casserole they serve at the local soup kitchen each Sunday? Don’t forget the driving either; while commuting to and from charity doesn’t count, delivering meals or chauffeuring other volunteers can be deducted at a rate of 14 cents per mile.
A qualified tax advisor will know even more itemized deductions to look for. And don’t forget even the IRS itself offers up tax tips on its website, such as this page on overlooked tax credits.
Jeff Reeves is the editor of InvestorPlace.com and the author of The Frugal Investor’s Guide to Finding Great Stocks.