Overlooked Credits & Deductions

H&R Block Tax Tips

Overview


  • Commonly overlooked deductions and 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.
  • Nearly 4.1 million people fail to claim education tax benefits, including the Hope Credit, Lifetime Learning Credit, Tuition and Fees Deduction, Student Loan Interest Deduction, and the Exclusion for Savings Bond Interest.
  • File an amended return to claim missed deductions and credits within 3 years.


Earned Income Credit (EIC)


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

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

  • $12,590 ($14,590 if Married Filing Jointly) with no qualifying children.
  • $33,241 ($35,241 if Married Filing Jointly) with 1 qualifying child.
  • $37,783 ($38,348 if Married Filing Jointly) with more than 1 qualifying child.


Child Tax Credit


You can claim $1,000 for each child. This amount decreases once your adjusted gross income (AGI) exceeds the limit. For 2007, the 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 tax is reduced to zero and your earned income is more than $11,750, you may be eligible to claim the additional Child Tax Credit.

Saver's Credit


If you qualify, you could get a credit for up to half of what you contribute to a qualified retirement plan or IRA. Claim the Saver's Credit 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 $26,000 ($52,000 if Married Filing Jointly, or $39,000 for Head of Household).


Education Tax Benefits


Even if you don't itemize, you could save money with these education credits and deductions.

  • Hope Credit — A credit equal to 100% of the first $1,100 and 50% of the next $1,100 per student for tuition and related fees, with a credit maximum of $1,650 per student. It's restricted to the first 2 years of college and can be claimed only twice per student.
  • Lifetime Learning Credit — A credit of 20% of your annual tuition and related fees, with a credit maximum of $2,000 per return. The 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 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 one of the above benefits, and other restrictions apply.

Medical Expenses


If you spend more than 7.5% of your 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 7.5% of your AGI. Keep in mind, you must itemize to claim medical deductions.

Moving Expenses


Even if you don't itemize, 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, 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 return to his year's estimated tax payment, be sure to include that amount too.

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 the sales tax you pay on a car to the amount in the table as well as other items specified in the instructions.

Charitable Donations


If you itemize, 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 made after 2006.
  • Item Donations — Give new or used goods to charity and deduct their fair market value. Special rules apply to donations of vehicles.
  • Volunteering — Deduct 14 cents 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 Deductions


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

  • Deduct half of your self-employment tax.
  • The Section 179 Deduction generally allows you to write off up to $125,000 of business property other than real estate purchased in 2007. Higher limits may apply.
  • If you use a part of your home exclusively and regularly for business, you can deduct the business portion of rent, mortgage interest, real estate taxes, utilities, insurance and repairs.
  • You can establish a retirement plan that may allow you to make contributions that exceed the amount you can contribute to a traditional IRA or Roth IRA.


Energy Credits


If you made any of the following improvements to your main home in the U.S., you may qualify to claim the energy credit: insulation or a system designed to reduce heat gain or loss in the home, exterior windows (including skylights), exterior doors, electric heat pump, central air conditioner, furnace, or water boiler. Items you install must meet certain requirements for energy efficiency.

Alternative Minimum Tax Credit


If you were subject to the alternative minimum tax (AMT) in a prior year and you're not subject to the AMT this year, you may be eligible to claim the minimum tax credit. Beginning in 2007, a portion of the amount carried to 2007 may be refundable.

Claiming Overpaid Taxes


If you're eligible for any of the above credits, the IRS allows you to reclaim your lost money by filing an amended return for prior years. However, you can file an amended return only for up to the past 3 years.

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