When an individual or couple files their taxes, they are usually eligible for at least a few tax breaks. The thing is, deductions and credits aren’t usually applied automatically. In many instances, you have to choose to pursue that tax deduction on your return. If you don’t, then you end up overpaying. (DFW Tax Gurus: Overlooked, Secret Tax Breaks )
Most Overlooked Tax Breaks
There are a few tax breaks that people are fairly familiar with, regardless of whether they apply to their own tax situation. For example, most people know about the child tax credit and earned income credit, even if they don’t personally qualify.
However, there are many others that aren’t as widely known. As a result, tax filers may miss them simply because they don’t realize the deductions or credits are available.
By understanding which tax deductions are frequently overlooked, you can decrease your odds of overpaying. See if any of the situations apply to you and, if so, make an effort to secure that tax break.
Here is a look at five tax breaks that taxpayers frequently miss.
1. Gambling Losses
Whether you live in a state with casinos, spent some time at the track, played the lottery, or took a trip to Las Vegas in 2019, you might be eligible for a tax break. Gambling losses are deductible in some situations.
If you want to claim the deduction, you do have to itemize. In some cases, that approach won’t make sense. But, if you are itemizing anyway, it could help you lower your tax bill.
Additionally, the deduction is limited to how much you report as gambling winnings as part of your taxable income. As a result, it could help you offset how much you owe if you happened to come out ahead when gambling.
2. Jury Pay Given to Your Employer
If you work for a company that pays you your usual wage when you’re on jury duty but requires you to hand over your jury duty pay to them, then you are eligible for a small tax break. Jury pay has to be reported as taxable income.But, if you had to give that check to your employer, you can deduct that amount.
3. Child Care Expenses
Through the Child and Dependent Care Tax Credit, you might be to reduce your tax bill. You can get between 20 and 35 percent of up to $3,000 or $6,000 of your dependent or child care costs back as a credit if you qualify.
Eligibility is based on a few factors. First, you have to be using the service so that you can work. Second, for child care, the child must be under the age of 13. For spouses’ or parents’ or other dependents’ care, they must be deemed incapable of self-care and live with you for more than half of the year.
The size of the credit decreases for higher-income households, though it never disappears completely. While the credit isn’t refundable, it can help you reduce your liability significantly.
4. Dependent Tax Credit
Even if a dependent no longer qualifies you for the child tax credit, that doesn’t mean you can’t get a break. Older children, including college-aged kids, as well as aging relatives who you are providing care for in your home, can make you eligible for a dependents credit of $500.
This tax credit does phase out for higher-income households. If your adjusted gross income is above $200,000 ($400,000 if you are married filing jointly), you’ll fall in that category.
5. Student Loan Interest Paid by Parents
If a parent is paying back your student loans, you are the one who can legally claim the student loan interest deduction. Only the person who is responsible for the debt can deduct the interest, regardless of who is actually paying the bill. This includes adult children who aren’t being claimed as dependents by their parents.
The best part about this deduction is you don’t have to itemize to claim it.That makes it significantly more accessible. Additionally, you aren’t taking a deduction from your parents, as they can’t legally claim it anyway.
Claiming a Tax Break
In most cases, the federal government doesn’t just take your word when you say you are eligible for a tax break. Instead, it requires some form of evidence or proof.
Depending on the deduction or credit, what you need to support your claim varies. You might need details from a specific tax document, like a 1098-E for student loan interest. For the child care tax credit, you have to provide information about the care provider and have proof that you incurred the expenses.
Incorrectly claiming a tax break has consequences. If you aren’t sure you have what you need to claim a deduction or tax credit, it’s wise to review the IRS website. It will outline what you need in each scenario. You can also speak with a tax professional, as they are typically well aware of what it takes to qualify.
Call Williams & Kunkel CPA today in Flower Mound at 972-446-1040 to have a chat and find out how you can save money on your taxes as a real estate professional.
Source: Saving Advice