The Most Commonly Overlooked Tax Deductions

Start taking steps now to save money during tax season.

Tax preparation
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Although tax season may seem like light years away, there are steps you can take now to bump up your refund.

To get more money back from Uncle Sam, consider putting in the extra work to itemize your deductions. According to the most recent IRS data from 2009, about 45 million Americans claimed more than $1 trillion in deductions by itemizing on their 1040s. Meanwhile, an estimated 92 million taxpayers claimed $700 million through standard deductions—but some who took the easy way out might have cost themselves.

To help you get the most from your tax return, U.S. News consulted four certified public accountants: Steven Albert of Glass Jacobson in Owings Mills, Md., Melissa Labant of the American Institute of CPAs, Dennis Newman of Sharrard, McGee, & Co. in Greensboro, N.C., and Sandy Stolar of EisnerAmper LLP in New York City. They identified the deductions taxpayers most frequently miss:

Medical and dental care expenses. Currently, individuals are allowed to deduct medical and dental expenses on their tax return if the costs exceed 7.5 percent of their adjusted gross income (AGI), but that threshold will be increased next year to 10 percent as a result of the Patient Protection and Affordable Care Act. Eligible medical deductions are expenses incurred under a doctor's prescription. In other words, "if you just want to take vitamins, you can't deduct that," notes Albert.

People often forget to deduct travel expenses incurred to receive medical care, says Stolar. If you can't make the trip on your own, a portion of a companion's lodging expenses may be eligible for a medical deduction as well.

Those receiving Social Security frequently don't take the Medicare Part B deductions they're entitled to, Newman says. "If you're a retiree or disabled, depending on your income, money is withheld from your Social Security check and that's considered health insurance premiums, which are deductible," he says.

If you're the parent of a child with special needs and he or she must attend a specialized school, you may be able to deduct enrollment expenses, says Albert.

Child and dependent care credit. Although this isn't technically a deduction, it's a valuable tax credit that's frequently overlooked. If you have a dependent child (or children) younger than 13, you may be eligible for a credit for the costs of a childcare provider and certain childcare programs. Eligible childcare programs include before- and after-school care and day camps, but not overnight camps. For married couples to qualify, both spouses must work, or the non-working spouse must be a student or disabled. Parents with one child are eligible for a credit based on the first $3,000 of childcare expenses, and parents with two or more children can get a credit of up to $6,000.

Similarly, if you have a dependent parent who lives with you and can't physically take care of him or herself, you can receive a credit for the costs of caring for your parent. Such costs may include adult day care and in-home care.

Contributions to charity. Check and cash contributions to charities are generally fully deductible up to 50 percent of your adjusted gross income. Labant says people are fairly good about keeping track of those donations, but many don't deduct for costs incurred while doing work for a charity. These costs include mileage while volunteering for charitable organizations, which was $0.14 per mile for 2011, and out-of-pocket expenses, such as ingredients for a bake sale.

Labant adds that taxpayers should also look at their December paystubs, since many employees have charity contributions automatically deducted from their payroll.

Taxpayers can also deduct non-cash gifts to charity, like clothes to Goodwill, but make sure to save receipts for these types of donations.

State sales and income taxes. Taxpayers can choose between deducting state and local sales taxes or state and local income taxes. Residents in states without an individual income tax, such as Florida and Nevada, will automatically take the sales tax deduction. In states with sales taxes, few people keep all their receipts throughout the year, so the majority will use the IRS table as an alternative for calculating their state and local sales-tax deduction.