With Tax Day fast approaching I thought I would share some of the most commonly overlooked tax deductions. If you are like me you look at the tax code and it drives you crazy. At last count the tax code was almost 75,000 pages long.* How do CPAs deal with it every day.
Before I give you the 6 most overlooked deductions remember to consult a qualified CPA or tax professional before you decide to implement any of these.
- Charitable Mileage: Its not surprising that most taxpayers do a good job of keeping receipts of their cash donations that they make to charitable organizations. One of the few deductions most tax payers do not pay attention to is the charitable mileage deduction. For 2016, you can deduct 14 cents per mile driven for gratuitous service for charitable organizations. Think about all time you spend for your religious organizations, charitable causes or non-profit boards you may be a part of.
- Non Cash Charitable Contributions: Most of us have donated items to Goodwill or the Salvation Army and they give us a blank receipt. It is blank so we can itemize what we donate. Far too often we tell our accountants we donated a bag or two for $50. What a HUGE mistake! You can visit the Salvation Army’s website and get a list of low to high value per item and then examine the true market value of each item you have donated. Again it is important to document.
- Student Loan Interest: For 2016, a taxpayer can deduct up to $2,500 in student loan interest, regardless of whether or not you itemize your deductions. This is huge considering student loan debt just crossed $1 Trillion dollars outstanding. The deduction beings to phase out at $80,000 for single filers and $160,000 for joint filers.
- Tuition Deductions: For 2016, a taxpayer can deduct up to $4,000 for higher education tuition and fees. The deduction phases out at $80,000 for single filers and $160,000 for joint filers but this is a big deduction for parents paying college tuition for their kids or adults going back to college.
- Convert to a Roth IRA: The only two certainties in life are death and taxes. Sometimes it makes sense to pay a tax now so you don’t have to pay one in the future. If you had a down year in income in 2016 it may make sense to convert your traditional IRAs into Roth IRAs. Consult your Financial Advisor and tax professional to see if this makes sense for you. Traditional IRA account owners should consider the tax ramifications, age and income restrictions in regard to executing a conversion from a Traditional IRA to a Roth IRA. The converted amount is generally subject to income taxation.
- Qualified Charitable Deduction: Thanks to the PATH Act of 2015 the ability to make charitable contributions from an IRA if you are at least 70 ½ has been made permanent. Assuming you meet the age requirement you can give up to $100,000 of your IRA to a charity and escape paying taxes on that amount. This can be a very attractive strategy for those who are taking required minimum distributions and making charitable cash contributions. It is far better from a tax perspective to gift from the IRA as opposed to paying with cash.
Once again as Tax Day quickly approaches I encourage you to work with your CPA to make sure you are maximizing your deductions and legally minimizing your taxes. If you are looking for ways to improve your financial and tax planning strategies I am here to help. Contact me in the office (336-310-4233) for a free 30 minute consultation.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. We suggest that you discuss your specific situation with a qualified tax professional. This information is not intended to be a substitute for specific individualized tax advice. Independent Advisor Alliance, Thorium Wealth Management and LPL Financial do not provide tax advice or services.