The 3 Tax Breaks You're Likely to Miss

Forbes

No one likes to throw away money but many people do it every year when they file their income taxes. The problem lies in the details -- I see this as one of those classic forest/trees issues. When we have to focus so much on the details, we miss the bigger picture and this problem is inherent in taxes because there are so many details. Whether we use a tax professional or not to help us prepare our taxes, we still have to gather all of our wage information, bank and investment statements and receipts. There are usually things we miss such as car registration or certain charitable donations and there is a mad scramble to find them. Since we are talking about the IRS and mistakes can not only mean penalties and fees but also audits, annual income tax filing is a rather stressful event for most people.

More from Forbes.com:

How to Claim Your Elderly Parent as a Tax Deduction

10 Ways to Attract an IRS Audit

7 Reasons to e-File Your Tax Return

That is exactly the problem; it is an event similar to open enrollment for employees which usually hits at the end of the year. Employees generally don't think much about their benefits during the year and then they are bombarded with a long list of important decisions to make all at one time. Many take less than two hours to fill out their information and subsequently miss out on some benefits they didn't know they had or underutilize benefits they didn't know how to truly maximize. Taxes are the same way.

April 14 is not the optimum date to be doing tax planning and tax reduction strategizing. Once tax returns are signed, sealed and delivered to the IRS, many people don't revisit them again until the following year when they make a new tax file with a new year on it. Because of this, people miss deductions that may apply to them. As I am writing this, I am well aware of the date as we are approaching the end of March so as I say this my first suggestion is to put a reminder on the calendar to review tax planning and tax reduction strategies in September in order to plan ahead. That said, here are three important tax deductions that many people overlook:

Employee Business Expenses

Do you use your cell phone exclusively for work without the benefit of an employer paid phone? Do you invest in yourself to excel on the job such as purchasing books or subscribing to magazines or even taking additional classes that are not reimbursed by your employer? Many people do some type of work at home using their own copier and office supplies. Those taxpayers who keep track of these expenses throughout the year can deduct any unreimbursed employee business expenses over 2% of their adjusted gross income (if they itemize).

A taxpayer whose adjusted gross income is $50,000 has to first have $1,000 in expenses. Anything over that can be deductible. That may seem like a lot at first but if a cell phone and Internet access is $100 per month, you've already passed the 2% threshold. After that, business-related expenses such as your magazines, printer cartridges, and Web design class are all deductible. This is an often overlooked deduction that can save hundreds of dollars in taxes each year.

http://www.irs.gov/taxtopics/tc514.html

Business Use of Home

The trend is for employers to encourage employees to work from home either on a regular basis or for a few days per week. If working at a home office is for the convenience of the employer, the employee may be able to take a home office deduction on their taxes. Anyone that is self employed simply takes the deduction on Schedule C, but if you aren't self employed and work from home on a regular basis, there may be some additional deductions available to you. Think about it from a practical viewpoint. Working from home means you are using more utilities to keep the lights on and the heater running in your designated work space. It makes sense to write that off. This deduction tends to be an audit flag, so remember the space must be used exclusively for work (no personal use allowed), and be sure to keep good records. You may have to run the numbers first to make sure taking this deduction makes sense, but if it does, it could save hundreds of dollars in income taxes.

http://www.irs.gov/newsroom/article/0,,id=108138,00.html

http://www.irs.gov/publications/p587/index.html

Non-Cash Charitable Deductions

This is an area many people don't do a great deal of planning around; they simply clean out their closets during spring cleaning and take their bags of clothes to Goodwill or the Salvation Army. The charity hands out a receipt and that gets tucked away in the tax file only to be brought out with the other stack of papers. Seriously, when the receipt says "3 bags of clothes" do you really remember what you donated? Was there a leather Kenneth Cole jacket in there and designer jeans which would bring $300 between the two of them even at thrift store prices? Who can remember? If you can't remember, you simply put the thrift store equivalent prices for basic garments.

With a little planning and some record keeping, people can easily double their non-cash charitable deductions. The devil is in the details and that is what the IRS wants to see if you are audited. Consider keeping track of what you donated, including details on the items, and noting the estimated value at the time of the donation rather than lumping receipts together at the end of the year. If you are not sure what your donated items may be worth, you can use tools such as ItsDeductible Online for help. Non-cash charitable deductions in excess of $500 must be accompanied by Form 8283, and contributions of non-cash property worth more than $5,000 must have a qualified appraisal. The charities want your best goods so consider giving the Gucci purse and the Jimmy Choo shoes if you aren't in love with them anymore. The charity loves it, the IRS understands it, and you appreciate the deduction.

http://www.irs.gov/taxtopics/tc506.html

Consider doing some tax planning of out of pocket business expenses. Saving on taxes is a worthwhile endeavor and it doesn't have to be hard; it does however take some thought, some knowledge, and some strategic planning. That is usually best done when we don't have both a pile of receipts in front of us and another pile of forms. It may be too late to do much planning for this year with the April 18th deadline looming, but it is certainly not too late for next year's taxes and for the next twenty after that.

Liz Davidson is CEO of Financial Finesse, the leading provider of unbiased financial education for employers nationwide, delivered by on-staff Certified Financial Planner professionals.

DISCLAIMER: Financial Finesse provides information and education on a variety of topics, including education on investment fundamentals. We do not provide investment, tax, or legal advice. We do not recommend particular investment funds or strategies. Such advice should be obtained from a qualified financial, legal, or tax advisor based on your individual situation.

View Comments (0)