Tax deductions and credits are key to ensuring you maximize your tax refund. People have gotten away with some crazy deductions, all IRS-approved. For example, a gas station owner deducted his beer expense because he gave it away as a part of a promotion and was able to write off the cost as a business expense. There’s the ‘body oil’ deduction used by body builders who can write off their oil expenditure as a business expense. A parent was once able to write off their child’s clarinet lessons as a medical expense, claiming that playing the instrument was correcting the child's overbite.
While these are extreme and very unique examples of tax write-offs, there are some lesser-known deductions and credits that often go unclaimed. Most Americans are aware of tax deductions and credits for new additions to the family, buying a house, home-mortgage interest, and medical and dental expenses, but as you get ready to file by the April 17 deadline, make sure to get the tax refund you deserve by keeping the following lesser-known deductions and credits in mind:
• Casualty Loss: If you were a victim of damage caused by a sudden and unexpected natural disaster, like a roof collapsing due to heavy snow, you could qualify for a casualty loss deduction. However, if damage is caused from something happening gradually, such as water seepage in a basement, you would not qualify.
• Volunteer expenses: Not only are charitable donations of money and goods to a qualified charitable organization tax-deductible, if you spend money out-of-pocket in the course of performing volunteer duties, you are entitled to some modest tax deductions.
• Deduction for a bad investment: While the IRS won’t give you back the money you lost in an investment, the government will let you take a deduction for the loss. By showing that a stock had value at the beginning of the year but not at the end of the year, you may qualify for a deduction. Similarly, if you learn your investment became worthless in a prior year, file an amended tax return for that year to claim a refund. Although usually you have just three years to file an amended return, in the case of worthless investments, you have up to seven years from the date your original return was due to claim a deduction.
• Savers credit: Many taxpayers miss this tax deduction that helps low- to moderate-income filers save for retirement. The credit may be worth $1,000 ($2,000 for married filing jointly) for contributing to a qualifying retirement plan such as a 401(k) or IRA. This is an added bonus on top of the $5,000 ($6,000 if you're 50 and over) tax deduction you may get for contributing to your IRA, and savers have all the way up to tax day to contribute. With changes in the economy, many taxpayers may now qualify for the Savers Credit due to lower income.
• Start-up costs: Business and organizational costs are capital expenses and typically cannot be deducted all in one year. However, taxpayers may elect to deduct up to $5,000 in business start-up costs and $5,000 in organizational costs. These costs are amounts paid to create an active trade, business, investigate the creation, or acquisition of a business.
• Shaping up: The IRS does not offer deductions for gym memberships, extreme workout DVDs, or Pilates machines. But if your doctor tells you that your life is dependent on a healthier lifestyle, you could be an exception to the rule. Your doctor needs to vouch for your condition, but once he or she does, almost anything that you used to lose weight, lower cholesterol, or cure what's ailing you can be eligible
By taking these lesser known tax deductions and credits into consideration, you may find some additional ways to maximize your refund.
Lisa Greene-Lewis is a CPA and TurboTax Tax Expert. Lisa has 15 years of experience in tax preparation. In addition, Lisa has a very well-rounded professional background and has held positions as a public auditor, controller, and operations manager.