27 October 2009
Commonly overlooked tax deductions and tax credits include the Earned Income Credit, Child Tax Credit, Saver's Credit, medical expenses, moving expenses, state and local taxes, charitable donations, job expenses and self-employment deductions.

Earned Income Credit (EIC)

The EIC is designed to offset the burden of Social Security taxes for low-income workers. You can claim this tax credit even if you have no tax liability.

You may qualify for the EIC in 2009 if your earned income and adjusted gross income are less than:

  • $13,440 ($18,440 if Married Filing Jointly) with no qualifying children.
  • $35,463 ($40,463 if Married Filing Jointly) with 1 qualifying child.
  • $40,295 ($45,295 if Married Filing Jointly) with 2 qualifying children.
  • $43,297 ($48,297 if Married Filing Jointly) with 3 or more qualifying children.

You may qualify for the EIC in 2010 if your earned income and adjusted gross income are less than:

  • $13,460 ($18,470 if Married Filing Jointly) with no qualifying children.
  • $35,535 ($40,545 if Married Filing Jointly) with 1 qualifying child.
  • $40,363 ($45,373 if Married Filing Jointly) with 2 qualifying children.
  • $43,352 ($48,362 if Married Filing Jointly) with 3 or more qualifying children.

Child Tax Credit

You can claim $1,000 for each child. The 2009 Child Tax Credit begins to phase out when your AGI is more than these limits:

  • $75,000 if Single, Head of Household or Qualifying Widow(er)
  • $110,000 if Married Filing Jointly
  • $55,000 if Married Filing Separately

If your income tax is reduced to zero and your earned income is more than $8,500 (for 2008), you may be eligible to claim the additional Child Tax Credit.

Saver's Credit

If you qualify, you could get a tax credit for up to half of what you contribute to a qualified retirement plan or IRA. Claim the Saver's Credit in 2009 if you meet all the qualifications:

  • You're age 18 or older.
  • You aren't a full-time student.
  • You aren't claimed as a dependent on someone else's return.
  • Your AGI doesn't exceed $27,500 ($55,000 if Married Filing Jointly, or $41,625 for Head of Household).

Education Tax Benefits

Even if you don't itemize your tax deductions, you could save money with these education credits and deductions.
  • Hope Credit — For 2009 tax returns, a tax credit equal to 100% of the first $2,000 and 25% of the next $2,000 per student for tuition and related fees, with a credit maximum of $2,500 per student. It's restricted to the first 2 years of college and can be claimed only twice per student.
  • Lifetime Learning Credit — For 2009 tax returns, a credit of 20% of your annual tuition and related fees (up to $10,000), with a credit maximum of $2,000 per return. The tax credit may be claimed for an unlimited number of years.
  • Tuition and Fees Deduction — You can deduct up to $4,000 per student for tuition and fees.
  • Student Loan Interest Deduction — Deduct up to $2,500 per return for interest paid on student loans.
  • Exclusion for Savings Bond Interest — Some or all of the interest received from eligible bonds issued after 1989 may be excludable if qualified higher education expenses for the year are at least as much as the proceeds of the redeemed bonds.

Note: You can't use the same expenses to claim more than 1 of the above benefits, and other restrictions apply.

Medical Expenses

If you spend more than 7.5% of your adjusted gross income on medical expenses, such as insurance (but not your pre-tax premiums), prescriptions, other out-of-pocket expenses, and mileage to and from medical facilities, then you may deduct the amount that exceeds that figure. Keep in mind, you must itemize income tax deductions to claim medical deductions.

Moving Expenses

Even if you don't itemize income tax deductions, you could deduct moving-related expenses. Your move must meet the following qualifications:

  • Your move must be job-related.
  • Your new job would have increased your commute by more than 50 miles if you hadn't moved.
  • You must be employed full time for at least 39 weeks during the 12 months after you move. If you're self-employed, the applicable figures are 78 weeks and 24 months, respectively, and at least 39 of the weeks must be in the first 12 months.
  • Your moving expenses can't be reimbursed by your employer.

State & Local Taxes

If you itemize income tax deductions, you have the option of claiming your state and local sales tax or state and local income tax for the year. Be sure to determine which amount will be larger, because you can't claim both.

If you choose to deduct income tax, include your withholding and estimated tax payments for the current year as well as any balance due from a prior year. If you credited an overpayment from last year's tax return to his year's estimated tax payment, be sure to include that amount too. If you're subject to Alternative Minimum Tax (AMT) and have a state tax refund, it may be better for you to claim the sales tax deduction even if it's smaller than the income tax deduction.

If you choose to deduct sales tax, you can deduct either the actual amount you paid or the amount from the table in the Schedule A instructions. You can add to the amount in the table the sales tax you pay on a car as well as other items specified in the instructions.

Charitable Donations

If you itemize income tax deductions, you may deduct your charitable donations. You'll want to keep good records or all your donations.
  • Money Donations — Receipts are required for all money donations.
  • Item Donations — Give new or used goods to charity and deduct their fair market value. Special rules apply to donations of vehicles and to donations of appreciated property (property that is worth more than you paid for it).
  • Volunteering — Deduct 14¢ per mile while driving for charity. You can also deduct other out-of-pocket expenses.

Out-of-pocket Job Expenses

Keep track of job expenses not reimbursed by your employer. You could deduct these costs:
  • Driving expenses (the non-commuting kind)
  • Travel expenses
  • Uniforms
  • Union dues
  • Continuing education expenses

Self-employment Tax Deductions

If you're self-employed, you could qualify for additional income tax deductions. If you work out of your home or use your personal vehicle, there are even more opportunities to claim your expenses. Here are a few examples:

Up to 100% of medical insurance costs you pay for yourself, your spouse, and your dependents may be deductible as an adjustment to income on Form 1040. The deduction is subtracted directly from your total income and applies whether or not you itemize.

If you use your vehicle for business purposes, you may be able to deduct expenses associated with such use. To do this, you must keep track of actual expenses or use the standard mileage rate.

You may be entitled to a tax break if you are operating a business from your home. The following questions will help you determine whether you can deduct the business use of your home
  • Is this part of your home used regularly and exclusively in conjunction with your business or work?
  • Is this your primary place of business?
  • Is this where customers and clients meet with you?
  • Is this where you store product samples?
  • Is this where you administer or manage your trade or business?

If you answer yes to any of these questions, you may be able to deduct certain depreciation and operating expenses for the business use of your home. The same tax benefits may apply if you maintain a separate structure for your business.
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Topic: Credits and Deductions