FORT BENNING, Ga., (Jan. 22, 2014) -- Taking advantage of all of the tax breaks you deserve could be the difference between owing taxes or claiming that coveted tax refund. In order to maximize the credits and deductions to which you are entitled, the Fort Benning Tax Center has created a quick list for you to keep in mind this tax season.
STATE SALES TAX
For taxpayers who choose to itemize deductions, as opposed to take the standard deduction for your filing status, there is a choice between deducting state income taxes paid or state sales taxes paid. This is particularly important to those who are residents from a state that does not impose a state income tax, such as Florida. Generally, you or your tax preparer will choose whichever gives you the largest deduction.
The IRS has tables that show how much residents of various states can deduct, based on their income and state and local sales tax rates. That means the shoebox full of sales receipts from Starbucks coffees is not necessary to claim this deduction. Further, if you purchased a vehicle, boat, trailer, or any other large, major item this past year, you may add the sales tax you paid on that big-ticket item to the amount shown in the IRS table for your state.
OUT-OF-POCKET CHARITABLE CONTRIBUTIONS
Most taxpayers are aware if they itemize their deductions, they are entitled to deduct financial contributions and the fair market value of items donated to charity. In addition, taxpayers are also entitled to deduct certain out-of-pocket costs associated with volunteering. For example, construction supplies you paid for to assist with a build for House of Heroes or ingredients you paid for to prepare a dish for a soup kitchen. Also, you are entitled to deduct 14 cents per mile plus parking and tolls paid traveling to and from charitable events.
Remember to keep your receipts, though. If your contribution is more than $250, you'll need written documentation provided by the charitable organization.
STUDENT LOAN INTEREST PAID BY MOM AND DAD
Generally, you can only deduct mortgage or student-loan interest if you are legally required to repay the debt. Therefore, if parents are paying back a child's student loans, the IRS treats that money as if it were given to the child who then paid the debt. This means that if you're not claimed as a dependent, you may qualify to deduct up to $2,500 of student loan interest paid even if your mom or dad actually paid the interest. On the other hand, if you are that parent paying for your child's student loan interest, you are not entitled to this as a deduction on your return.
This is what is commonly referred to as an "above-the-line deduction," so you can take this adjustment or deduction even if you don't itemize deductions.
AMERICAN OPPORTUNITY CREDIT
The American Opportunity Credit is good for all four years of college, not just the first two like its predecessor, the Hope Credit. This tax credit is based on 100 percent of the first $2,000 spent on qualifying college expenses and 25 percent of the next $2,000 for a potential annual credit per student of up to $2,500. The full credit is available to individuals whose modified adjusted gross income is $80,000 or less ($160,000 or less for married couples filing a joint return). The credit is phased out for taxpayers with incomes above those levels.
Most tax credits can reduce your tax liability to $0, but the excess credit drops off. That is known as a nonrefundable credit. However, the American Opportunity Credit is what is known as a refundable credit, which means if the credit exceeds your tax liability, it can trigger a refund.
COLLEGE CREDIT FOR THOSE LONG GRADUATED FROM COLLEGE
For those individuals who have qualified education expenses that are not for the first four years of college, you may qualify for a nonrefundable credit known as the Lifetime Learning Credit. The Lifetime Learning Credit can be claimed for any number of years and can be used to offset the cost of higher education for yourself, your spouse and your children.
The credit is worth up to $2,000 a year, based on 20 percent of up to $10,000 you spend for post high school courses that lead to new or improved job skills.
Classes you take even in retirement at a vocational school or community college can qualify. The right to claim this credit phases out as income rises from $53,000 to $63,000 for an individual return and from $107,000 to $127,000 for couples filing jointly.
JOB HUNTING COSTS
If you were unemployed at all during 2013 and you searched for a position in your previous line of work, you can deduct job-hunting costs as miscellaneous expenses if you itemize your deductions (to the extent your total miscellaneous expenses exceed 2 percent of your adjusted gross income).
Qualifying expenses can be written off even if you didn't land a new job. Job-hunting expenses incurred while looking for your first job don't qualify, though. Deductible job search costs include, but aren't limited to:
• Transportation expenses incurred as part of the job search, including 56.5 cents a mile for driving your own car plus parking and tolls
• Food and lodging expenses if your search takes you away from home overnight
• Cab fares
• Employment agency fees
• Costs of printing resumes, business cards, postage and advertising.
MILITARY RESERVISTS' TRAVEL EXPENSES
Members of the National Guard or reserves may write off the cost of travel to drills or meetings. To qualify, you must travel more than 100 miles from home and be away from home overnight. If you qualify, you can deduct the cost of lodging and half the cost of your meals, plus an allowance for driving your own car to and from drills. For 2013 travel, the rate is 56.5 cents a mile, plus what you paid for parking fees and tolls.
CHILD CARE CREDIT
If you paid someone to care for your child or children, you may qualify for the Child and Dependent Care Credit. You may include up to $3,000 for one child and $6,000 for two or more children for qualified care expenses. Keep in mind only expenses paid for children 12 years or younger will qualify. In order to qualify for this credit, you (and your spouse if married filing jointly) must be working outside of the home and receive earned income.
CREDITS FOR ENERGY SAVING HOME IMPROVEMENTS
There is a tax credit that's worth 10 percent of the cost of qualifying energy savers, such as new windows and insulation. If you made qualifying improvements in 2013, and you did not use up the maximum $500 credit (only $200 of which can be for windows) in earlier years, be sure to take advantage of this in your 2013 return.
Another credit for saving energy has no dollar limit.
This credit goes to homeowners who install qualified residential alternative energy equipment, such as solar hot water heaters, geothermal heat pumps and wind turbines. Your credit can be 30 percent of the total cost (including labor) of such systems installed through 2016.
The Fort Benning Tax Center opens Jan. 30 after 2 p.m. and will file federal and state returns for the 2014 season until the deadline April 15. All returns are prepared at no charge by individuals certified by the IRS.
The Tax Center will be open Monday, Tuesday and Thursday from 9 a.m. to 4:30 p.m., Wednesday noon to 8 p.m., Friday 9 a.m. to 4 p.m., and every other Saturday beginning Feb. 8 from 9 a.m. to 1 p.m.
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