1. Over $5,600 can be received through a Refundable Credit called the ‘Earned Income Tax Credit,’ or EIC on your online federal tax return. A refundable credit is better than a deduction, as the entire amount of EIC can be received in your refund from the IRS. The IRS estimates that 25% of all taxpayers eligible to receive this credit do not claim it when they file taxes online.
2. Do you live in a State with an income tax? If so, the sales tax deduction is often missed and overlooked on tax returns. It is easy to claim on your online tax return and lowers your taxable income if you itemize your deductions on the Schedule A. Usually, the state and local taxes paid provide a greater benefit for those living in an income tax state, but non-income tax states can still receive the benefit by keeping records of the ‘sales taxes’ paid during the year. You must choose one or the other with your online tax preparation, but they are both reported on the Schedule A – Itemized Deductions.
3. Choosing the wrong Education Credit is the cause of good refunds becoming much better and bigger! For most taxpayers Form 8863 – Education Credits – provides the biggest benefit and if you choose the American Opportunity Credit up to a $1,000 of the $2,500 credit is refundable on your online tax return! In other words, your refund just got a boost. There is a catch, Form 8917 – Tuition Fees & Deductions – can be used to reduce your taxable income, but this form doesn’t produce a credit. In some instances, it can provide you a larger refund than Form 8863.
4. For once, the IRS makes something easy to understand. The Child Tax Credit provides $1,000 for children age 16 and under that are qualified dependents. That’s it – nothing complicated!
Oh, one more thing – a tax credit actually reduces the tax owed, which usually is better than lowering your taxable income. Also, the Child Tax Credit is refundable. All in all, one of the better deals you can receive when you efile your online tax return.
5. The Child Care Credit applies to children that are cared for while the parents are working, but a single parent can qualify, too. You may be able to claim up to $6,000 in child care expenses on your online tax return and receive a 20% credit on your federal tax return. In other words, for every $1,000 spent a 20% tax credit can be claimed. This is a nice benefit for parents with preschool age children.
6. Points paid when you refinance your home is often missed by many taxpayers filing their tax return online. When purchasing a home, the mortgage ‘points’ are deductible at one time. However, when you ‘refinance’ you can only deduct the points over the life of the mortgage. For example, if you refinanced to a 30 year mortgage and paid $3,000 in ‘points’, 1/30th or $100 a year may be deducted. Whether you are purchasing a home or refinancing, the ‘points’ are claimed on the Schedule A (Itemized Deductions) with your online tax return.
7. Interest paid on Student Loans may reduce the amount of your taxable income by $2,500, subject to phase-outs for higher earners. A student loan is a loan taken out to pay qualified higher education expenses for you, your spouse, or someone who was your dependent when you received the loan. The education expenses must be paid, or incurred within a reasonable time, before or after the loan was received. The funds must be used toward education furnished while the student is enrolled at least half-time in a program leading to a degree or other recognized credentials. Eligible institutions are universities, colleges, vocational schools, and other post-secondary educational institutions which are eligible to participate.
8. Moving Expenses are a little tricky, but if you have to move to more than 50 miles from your current home to take your first job, or if you have been unemployed for a lengthy period of time, this deduction may apply to you when you file your taxes online. Also, you can receive the Moving Expenses deduction even if you don’t itemize. Keep a record of your expenses and research the rules thoroughly. Moving is expensive and Moving Expenses reduce your taxable income.
9. Out-of-Pocket expenses for a charity can add up. Remember these expenses when you file your taxes online and keep records of food purchased to make dishes or postage costs you paid working for a fundraiser, or a school project. Also, if you drove your vehicle for charity during 2010, you can deduct 14 cents per mile, if you keep a record. This is a small, but real benefit to others and reducing your tax bill.