The 10 Most Overlooked Tax Deductions
Before filing your taxes, don't miss out on deductions related to medical expenses and other costs that come out of your wallet as you care for a family member throughout the year.
An estimated one-third of U.S. taxpayers, or about 45 million people, itemize their taxes instead of taking IRS' standard deduction. An estimated $1.26 trillion worth of deductions are claimed annually, according to experts with TurboTax.
See if you can get a break on your taxes, with these 10 tax deductions.
1. Medical expenses
Nearly 100 medical costs can be deducted, related to the diagnosis, treatment, cure or prevention of disease or costs for treating any part of the body. Those include equipment, services and supplies, ranging from glasses to eye surgery to acupuncture to prescriptions.
"Lots of adults are paying for prescriptions for their elderly parents," says Melissa Labant, a CPA and technical manager for the American Institute of CPAs.
Even artificial limbs, bandages, hearing aids and wigs are accepted medical expenses (for others, see IRS' Publication 502). The medical and dental costs must total more than 10 percent of your adjusted gross income to be deducted (7.5 percent if either you or your spouse was 65 or older at some point in 2014).
2. Long-term health care costs
An often-missed expense is the amount paid for long-term care services and long-term care insurance (that's a more limited deduction, depending on age). Rehabilitation, therapeutic, preventative and personal care services are among those that qualify as long-term care services, if your family member is chronically ill and if it's part of a plan set by a health care practitioner.
Someone is considered chronically ill if they can't perform at least two activities of daily living (such as eating, toileting, bathing and dressing) without substantial assistance from someone else.
From weekly doctor's appointments to out-of-town visits with a specialist or for a procedure, the miles you log for your parents' medical needs can be deducted.
"You can take that if they qualify as your dependent. Keep a log as you're running around," says Mary Beth Saylor, a CPA and tax principal with Windham Brannon, an Atlanta-based accounting firm. "I've hardly seen anybody really keep up with that." You can take 23.5 cents a mile for 2014, for medical mileage.
If you're staying overnight for a medical purpose, deduct $50 per night, for each person, for lodging.
4. Dental expenses
Go ahead and smile – dental expenses are among the costs that some people ignore, including dentures and artificial teeth.
5. Home improvements for aging adults
Investing in ramps for a wheelchair-bound parent, handrails and grab bars in the bathroom or a stepless shower can be part of a deduction. It doesn't matter if the improvements are in your home or your parents' home, as long as it doesn't add value to the house, Saylor says.
The IRS says that the cost of the improvement is reduced by the increase in your property value. Other changes, such as widening doorways and hallways, lowering kitchen cabinets and installing lifts, also typically do not add value to houses.
6. Energy-saving home improvements
Whether or not you did this in the course of being a caregiver, any energy-saving changes are eligible for a credit. For more traditional items such as insulation and windows, it's 10 percent of the cost (a maximum of $500). For alternative energy equipment, like a solar hot water heater, the credit is up to 30 percent of the cost. Find more details from the federal EnergyStar program.(www.energystar.gov)
7. Mortgage interest
If you are paying interest on your or your parents' home loans, construction loans or home equity lines of credit, it's deductible. There are some limitations, though, so you need to discuss with your accountant.
8. State and local sales tax
This is an excellent idea if you live in a state that doesn't have income tax. If you do, you'll need to make a choice: Deduct state and local sales taxes, or state and local income taxes. You may find that the best financial benefit, in that case, is to stick with the income tax deduction, according to experts with TurboTax. Take some time to figure out your best option by using the IRS sales tax calculator.
9. Estate tax on an inherited IRA
This is not as easy as deducting medical expenses or charitable contributions, but is worth checking out. If you inherited an IRA from your parents, you could take an deduction for the federal estate tax paid on IRA income.
10. Charitable contributions
Of course, you may know to estimate the value of items you or your parents donate to charity. But you also can include other out-of-pocket costs related to volunteering. If you or your parents bought ingredients to make meals for the homeless or elderly, or if you drove a personal vehicle while volunteering or assisting a charity, those and other costs can be deducted.