Americans do a fairly good job of taking tax deductions every year, but as the maxim goes, there's always room for improvement.
Through February of this year, 45 million Americans filing IRS 1040 tax forms have taken a total of $1.2 trillion in tax deductions, according to Intuit Turbo Tax. But $747 billion of that amount came from taxpayers taking the standard deduction when filing. As any tax pro will tell you, taking the standard deduction, instead of itemizing them one by one, often leaves money on the table that otherwise could be pocketed.
"Deductions like student loan interest to long-term health care premiums represent a reduction of taxable income, and should be taken," says Jeffrey Sklar, managing partner of Sklar, Heyman, Hirshfield & Kantor LLP, a certified public accounting firm
licensed in New York, New Jersey and Florida.
Don't be that taxpayer who misses out - take these oft-overlooked deductions when filing your taxes this year:
Investment advisory fees - Sklar reminds financial services consumers that they can save money on taxes this year. "You can deduct fees paid to a financial planner as well as fees paid for the preparation of tax return," he says.
Legal fees related to alimony - If you are going through a divorce and seeking alimony from your spouse, the lawyer expenses associated with the alimony are a Schedule A 2% miscellaneous itemized deduction, says Ben Westerman, a Senior Vice President at HM Capital Management, in St. Louis. "It's important to note that the lawyer must itemized the alimony-associated expenses in order to take the deduction," Westerman notes.
Travel expenses - Business owners can deduct 100% of expenses related to business travel. "This includes airfare, hotels, etc. and is not limited to just visiting clients," Westerman says. "This also includes travel for conferences, training, and shareholder meetings."
Theft, fire or other loss - Don't overlook one-time deductions, advises Benjamin Sullivan, certified financial planner and portfolio manager with Palisades Hudson Financial Group in Austin, Texas. "Most people know about annual deductions, such as state income and local real estate taxes, because they happen every year," says Sullivan. "But less frequent deductions, below, can be valuable." One example is theft, fire or other household loss, where you may be eligible for the casualty, disaster and theft loss deduction. "First calculate the loss incurred from each casualty or theft event that occurred during the year, net of any salvage value, insurance or other reimbursement," Sullivan says. "And then subtract $100 per event. Now you have your net loss. You're allowed to deduct the net losses that exceed 10 percent of your adjusted gross income."
Nonbusiness energy property credit - Homeowners who made qualified energy-efficient improvements like adding insulation, energy-efficient exterior windows and doors and certain roofs may be able to claim a credit for 10% of the associated costs, excluding installation costs, Sullivan adds. "However, installation costs for certain high-efficiency heating systems, air-conditioning systems, and water heaters and stoves that burn biomass fuel can be deductible," he says. "There's a lifetime limitation of $500, of which only $200 may be used for windows."
Residential energy efficient property credit - Homeowners who make energy-efficient improvements to their primary residences can reduce their taxes by 30% of the cost of the qualified alternative energy equipment installed on or in their homes, Sullivan notes. "Eligible deductions include solar hot water heaters, solar electric equipment, and wind turbines," he states. "Unlike some credits, there is no dollar limit for most types of property, and any unused credit can be carried forward to the following year's tax return."
Don't assume something isn't deductible. Find out for certain, Sullivan adds. "The tax code is long and complex," he says. "Before you decide an expense isn't or is deductible, check with an expert. If you use a tax preparer, ask him or her. If you do your own return, you should make sure your advice is coming from a reliable source such as the IRS website."
Whatever you do, don't rush through your tax returns without taking the time to comb through your forms for every deduction possible.
"If you haven't filed your taxes yet, there's no need to panic," says Greg Rosica, contributing author to the EY Tax Guide 2017. "One of the worst things you can do when filing your taxes is rush. The first step you should always take is to review last year's tax return and documentation to reflect on any big life changes you may have made in 2016, such as getting married, having a child, freelancing or moving into a new home, all of which come with tax implications and deductions. Many people overlook these changes."