The Most Commonly Overlooked Tax Deductions

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The IRS table is for figuring deductible sales tax based on where an individual lives, his or her income, and the size of the family. In addition to the amounts calculated on the table, an individual can add to his sales-tax deduction for each year the state and local sales taxes are paid on purchases and leases of cars and on purchases of boats and airplanes, plus sales tax paid on other large purchases determined by the IRS (e.g., major home renovations).

In higher income-tax states, most people will opt for the income-tax deduction, since the income-tax deduction is often a bigger burden than the sales-tax deduction.

Home mortgages and refinances. Homeowners that meet certain requirements are eligible to immediately deduct all points paid to obtain a home mortgage on the original purchase of their main home.

However, if you refinance your original loan, the points paid on the new loan must be deducted over the life of the loan. For example, if you take out a 10-year mortgage at the beginning of the year, you can deduct 1/10th of the points each year—equivalent to $1,000 a year for each $10,000 of points paid on the loan. If, however, you take out a bigger loan than your first mortgage, any points paid on amounts used for substantial improvements on the home may be deducted immediately.

Job-hunting expenses. These include resumes, job counselors, mileage costs if the job you're applying for is local, and overnight travel, so long as the new employer doesn't reimburse you. If you're looking for your first job, you can't deduct these expenses.

Costs incurred while hunting for a position in the same line of work as your previous job can be written off as miscellaneous expenses, as long as you itemize and your total miscellaneous expenses are more than 2 percent of your AGI. Other miscellaneous expenses include tax-preparation fees, costs for job-related uniforms, union dues, and subscriptions to job-related newspapers and trade journals.

Moving costs for a job. Given the exceedingly tight job market, many people are forced to move for a job. The good news: You don't have to itemize to qualify for this write-off. According to the IRS, you can deduct the reasonable expenses of moving your household goods and yourself (or your family) from your old home to your new home. Such expenses include the cost of lodging (but not meals) while traveling to your new home.

If you're moving for a job, Stolar says you must satisfy a two-part test. The first is the distance test: Your new workplace must be at least 50 miles farther from your old home than your old workplace was. For example, if your old workplace was 10 miles from your old home, your new workplace must be at least 60 miles from the old home. If this is your first job, your new workplace must be at least 50 miles from your old home. The second part is the time test: You must work full-time in the general area of your new workplace for at least 39 weeks during the first year after the move; if you're self-employed, you must work a total of at least 78 weeks during the first two years.

Deductions for the self-employed. If you're self-employed, you can deduct home-office expenses per a few conditions, namely that the space be used strictly for work. Most of the deduction is determined by the size of the office. For instance, if the office takes up 10 percent of your home, that means 10 percent of your annual electricity bill is tax-deductible.

Stolar says self-employed individuals can receive a full deduction for their health insurance, dental insurance, and long-term care insurance, so long as their self-employment income (less certain deductions) is greater than their health insurance premiums. In this case, it's a page one deduction, where the individuals would not have to itemize and the 7.5 percent AGI threshold does not apply.

Self-employed workers can also deduct baggage fees incurred while traveling for business. For frequent travelers, those costs add up.