So, who doesn’t like to save money on their taxes? Hopefully this list of common tax deductions that are often missed will help you to discover some additional tax savings!
- Business mileage. For 2015, the mileage rate is 57 ½ cents per mile, so it can add up quickly. Often, people say they have the business pay for the gas and think that is sufficient, but the mileage rate also includes depreciation of the vehicle and is much more valuable as a deduction than just the gas for the trip. This will absolutely help if you are a self-employed person, but it might also help even if you are an employee. You do need to track your mileage either with a mileage log or with one of the apps that are available to put on your phone or in your car, but with every 2 business miles, you are saving over $1 – not bad!
- Home office expenses. If you are self-employed and have an exclusive area in your home that you use only for business, you can take a deduction equal to $5 per square foot of that office. Or, if it gives you a larger deduction, you can calculate the percentage of your house expenses (mortgage interest, property taxes, utilities, etc.) that are allocated to the home office and use that number instead.
- Deduction of Medicare premiums for self-employed. With more people working past the age of 65, I have seen this deduction more and more often. Be sure you keep it in mind when accumulating your information. And remember this does not have to be taken as a medical deduction; it can be deducted on the front page of the 1040, which helps reduce your adjusted gross income.
- Out-of-pocket charitable contributions. Most people remember the cash donations that they make, but very few remember to take charitable mileage to perform their acts of charity or out-of-pocket costs, such as giving food to the Food Bank, the mileage to serve dinner to the homeless, and supplies given to schools for use in the classrooms. The charitable mileage rate is 14 cents per mile for 2015.
- Reinvested dividends as cost basis. You probably know that when you receive dividends on your investments, you are required to pay tax on that income, even when you reinvest that income. The deduction that is often missed is when those same investments are sold. Often, when people are determining their cost basis on investments that they have sold, they will get the original cost, but they miss all those years of reinvested dividends that have been taxed and used to purchase additional shares. It can be a tedious task to go back and accumulate the data of the reinvested dividend amounts since it requires accumulating the history, but usually you can contact the investment company, and they are able to print out a history to make it easier for you. There are now rules in place that require your investment company to report your cost basis, but this only applies to investments purchased since 2012, so it is still important to be aware of this missed deduction if you are selling a long-held investment in which you have been reinvesting your dividends.
- Points paid to refinance your mortgage. When you refinance your home mortgage, you are allowed to amortize the points you pay for the refinance over the term of the loan. If you refinance again before the full term of the mortgage, you can take the remaining fees in that year of your return. With all the refinancing we have seen in the past few years, this can amount to a good deduction if not missed.
- Lifetime Learning Credit. Most people remember to look at education credits for their children when they go to college full time. But education credits are not just for the college kids or limited to people who are going to school full time. The Lifetime Learning Credit can be claimed for any number of years and can be used to offset the costs for continued learning for you or your spouse. And remember: a credit is much more valuable than a deduction since it offsets your taxes dollar for dollar.
There is my list of the seven most commonly missed deductions. Hopefully one of those will be lucky for you and save you a few tax dollars!!
A little more about us:
Located in West Des Moines, Iowa with a branch office in Winterset, Iowa, McGowen, Hurst, Clark & Smith, P.C. celebrates 65 years of extending excellent service to our clients, providing them with accounting, auditing, consulting and investment expertise.
Established in 1946, our staff has grown from 3 to 60 employees, making us large enough to provide our clients with a broad base of experience and resources, yet small enough to offer very personalized service—which we feel makes us stand apart from other CPA firms. In addition to the traditional services of Accounting, Tax Preparation, Audit and Business Consulting, MHC&S offers our clients specialized services including Estate Planning, Business Valuations, Cost Segregation Studies, Retirement Planning, QuickBooks Training, Financial Advisory Services, Fraud Detection and Deterrence, Business Succession Planning, Litigation Support and more.
MHC&S is a member of CPAmerica International, Inc., a national association of accounting firms offering membership to only 90 firms throughout the United States. This association offers a wide pool of additional technical expertise to the members firms, as well as continuing professional education necessary to maintain the degree of excellence which MHC&S feels is vital in today’s business environment.