According to tax experts at Kiplinger Personal Finance, there are five legitimate tax deductions taxpayers frequently overlook. Consider these, which can save you a bundle if they apply:
State sales tax – The state sales tax deduction, which expired at the end of 2011, was re-instated on January 1 as part of the fiscal cliff negotiations – and is retroactive for 2012. Congress offers a choice between deducting state income taxes paid or state sales taxes paid. Choose whichever gives you the largest deduction. (The IRS has tables that show how much residents of various states can deduct based on income and state and local sales tax rates.)
State taxes paid last year – If you paid tax when you filed your 2011 state income tax return in 2012, include the amount in your state-tax deduction this year along with state income taxes withheld from paychecks or paid via quarterly estimated payments.
Charitable deductions – Most of us take deductions for our larger charitable gifts, but you can write off smaller out-of-pocket costs incurred while doing work for a charity – including food you donate to a nonprofit organization or stamps you buy for your school. Keep receipts and if your contribution totals more than $250, get an acknowledgement from the charity. If you drove your car for charity in 2012, deduct 14 cents per mile plus parking and any tolls paid.
Job hunting costs – Qualifying expenses incurred during a job search may be written off even if you didn’t land a new job, to the extent that your total miscellaneous expenses exceed 2 percent of your adjusted gross income. Deductible costs include transportation expenses, including 55.5 cents a mile for driving your own car, plus food and lodging expenses if your search took you away from home overnight, plus cab fares, employment agency fees, and costs of printing resumes, business cards, etc. (Job-hunting expenses incurred while looking for your first job may not qualify.)
American Opportunity Tax Credit – Unlike the Hope Credit that this one has temporarily replaced, the American Opportunity Credit is good for all four years of college, not just the first two. The 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 maximum annual credit per student of $2,500. The full credit is available to individuals whose modified adjusted gross income is $80,000 or less ($160,000 for married couples filing a joint return).