When tax returns come due every April 15th, everybody is looking to maximize their tax benefits. Getting the largest return when you file taxes is truly not about your skills, but rather how much you know about the tax system. It is all too common that many taxpayers either overlook or miss out on various credits and deductions they are unaware of. The most frequently missed deductions relate to health care expenses, insurance premiums, and interest rates on loans. This article will discuss a few types of deductions that could save you some serious cash on your next tax returns.
Disability Insurance Premiums
This insurance is quite possibly the most overlooked premium which qualifies as a tax deduction. It is important to remember that these premiums will always be tax deductible as a business expense for self-employed, taxpaying citizens. Just remember that if you deduct the premium on your tax return, any benefits which are paid on the policy will count as taxable income. Conversely, if you do not deduct your premium, then the policy benefits will not be taxable; this allows taxpayers to receive tax-free benefits should they become disabled.
Life Insurance Premiums
Your premiums for life insurance are another frequently missed deduction. Your premium is deductible since it qualifies as a business-related expense. Death benefits paid to business-related beneficiaries are usually tax-free, but there are situations in which this benefit is taxable if it is corporate-owned. For individual policy holders, the death benefit is usually tax-free as well. Most premiums are also eligible as a deduction for most non-qualified plans which include executive bonuses and deferred compensation.
If your medical expenses exceed 7.5% of your adjusted gross income, they are considered a deductible expense. The vast majority of taxpayers never accrue enough unreimbursed medical bills within a single year to qualify for the deduction. However, there are ways to boost your deduction if you have a substantial amount of pending bills. It is possible to schedule other medical expenses or procedures within the same fiscal year to breach the limit for the deduction. The total amount of expenditures which qualify for this deduction include operations not covered by your insurance and any other types of unreimbursed expenses you accumulated within the same year. These expenses may include routine checkups, chiropractic treatments, dental procedures, vision correction, and prescription drugs.
This can be a crucial deduction, but you should not declare this specific deduction if there is the possibility that your insurance company may reimburse you. If you receive an insurance check in the following year for reimbursement, you will need to claim the total amount of the reimbursement as income on your next tax return.
Many graduates struggle to pay off their massive loans once they enter the professional world, but this may actually qualify as a tax write-off. You can deduct up to $2,500 per year for the interest on your student loans, even if your deductions are not itemized. It is important to note that this deduction does have income limitations. Another added bonus for those who paid extra money on their student loans to reduce their principle amount can deduct the interest of voluntary payments.
Taxes for a New Vehicle
At the end of 2012, there was a revival of the deductions for state sales tax. This write-off allows taxpayers to choose between a deduction for either the state sales taxes or income taxes. If you live in a state with no income tax, this is an easy decision; however, if you live in one of the high-tax states it could save you a significant chunk of change if you made a large purchase, such as a new vehicle.
Check with a tax attorney if you have any questions about tax deductions.
Author: Written by Randy Otis of Levy Tax Help.