You probably keep track of your itemized deductions, including mortgage interest and charity deductions. You may get a credit for childcare expenses, or take advantage of any of a number of common tax breaks.
The tax code is complex, and there’s bound to be something that can lower your tax bill. What could you be missing?
Consider these little-known tips to pay fewer taxes:
Contribute more to your retirement plan if you’re age 50 or older
Once you reach age 50, you may be allowed to contribute more to your retirement plan. It’s called a “catch-up” contribution.
For example, most people can contribute $5,500 per year (2013) to their traditional IRA or Roth IRA. If you’ve reached your 50th birthday by the end of the year, however, you can contribute up to $6,500 per year.
If you are a high-income taxpayer, your maximum contribution to a retirement plan may be reduced.
Remodeling expenses that qualify as medical expenses
It’s harder to deduct medical expenses now that you can only deduct them to the extent they exceed 10% of your adjusted gross income. You might get there faster than you think, however, if you make major changes to your house for the benefit of yourself, your spouse, or a dependent who has special medical needs.
For example, the IRS has allowed deductions for adding swimming pools or wheelchair ramps, widening doorways, modifying entrances, and installing elevators when there is a medical purpose.
If the improvement increases the value of your home, you can only deduct the amount the cost exceeds the amount of value it adds to your home.
Service animal expenses
You can’t deduct expenses for your pets, no matter how much they cost. If you have a service animal, however, the initial cost, plus the expenses of care, training, and upkeep are deductible as a medical expense.
Not all service animals are just for sight-impaired or hearing-impaired individuals. You may also have a service animal for mental illness, diabetes, seizures, autism, and other conditions.
Foreign taxes paid
You may be able to take a credit or a deduction for foreign taxes you paid. You may not even be aware you paid foreign taxes, however, unless you study your brokerage statements or 1099 forms carefully.
If you own an international mutual fund, for example, it may have paid foreign taxes on your behalf.
Changes to mutual fund tax basis
When you own shares in a mutual fund, you often pay capital gains tax because the mutual fund sold assets, even though you did not sell any shares of the fund. You should increase your tax basis by the amount of gain on which you pay tax.
When you do sell the mutual fund shares, make sure you enter the adjusted tax basis, so you don’t pay tax on the same income twice.
Lawn care and home cleaning
You may be able to deduct part of the cost of lawn care, cleaning, utilities, mortgage interest, and other expenses of your home if you use your home for business.
For example, if you qualify to claim a room in your house as a home office for your business, you can deduct a portion of these expenses as business expenses.
You can only deduct outside expenses, such as lawn care, if the expenses relate to your business; for example if clients come to your home.