3rd Mar 2016
Tax season is here and it’s important to be aware of all the deductions and tax credits available to you so you don’t miss out on valuable savings — and a bigger refund. Here are some tax deductions that you should be taking advantage of that can save you hundreds, or even thousands, of dollars this year.
New and Improved Deductions
-Increased Long-Term-Care Insurance Premium Deduction: Individual long-term-care insurance can be expensive. However, premiums for this coverage can be deductible if your medical bills are high enough to allow you to itemize your medical expenses.
The IRS has increased the LTCI premium deduction limit to:
$390, from $380, for taxpayers ages 40 or younger
$730, from $710, for taxpayers ages 41 to 50
$1,460, from $1,430, for taxpayers ages 51 to 60
$3,900, from $3,800, for taxpayers ages 61 to 70
$4,870, from $4,750, for taxpayers ages 70 and older.
Remember, despite the increase in deduction limits, long-term care insurance is not always the best way to plan for long-term care, due to rising rates and long-term care insurance companies going out of business.
Often Overlooked Deductions
-Estate Planning Attorney Fees: If you met with us or another estate planning attorney within the past year, some of your legal fees may be tax deductible.
-Medical Expenses: Most tax payers are able to deduct some health care costs and medical expenses. For example, payments for doctors, hospital stays, prescriptions and other medical costs can be deducted — but only if they exceed 10 percent of your adjusted gross income (AGI). Note, however, that if you or your spouse are 65 years or older or turned 65 during the tax year you are allowed to deduct unreimbursed medical care expenses that exceed 7.5% of your adjusted gross income. The threshold remains at 7.5% of AGI for those taxpayers until Dec. 31, 2016. Keep in mind that the only expenses that are deductible are the ones not reimbursed by your insurance or some other way. See IRS Publication 502 Medical and Dental Expenses for more details.
-Caregiver Deductions: As a caregiver, you likely pay for some care costs out-of-pocket. Did you know, for example, that if you are caring for a relative, you might be able to claim tax deductions and credits for certain medical expenses? These can include dental treatments, transportation to medical appointments, health insurance premiums, and long-term care costs. The rules apply to caregivers for the 2015 tax year.
-Parental Deduction: If you are caring for your mother or father, you may be able to claim your parent as a dependent on your income taxes. This would allow you to get an exemption of $4,000 for him or her.
-Social Security Benefits: If you file a federal tax return as an individual and your combined income, including half of your Social Security benefits and nontaxable interest income is between $25,000 and $34,000, 50% of your Social Security benefits will be considered taxable. If your combined income is above $34,000, 85% of your Social Security benefits is subject to income tax.
-Real Estate Taxes: If you don’t have enough deductions to itemize, you can still increase the amount of your standard deduction by the amount of your real estate taxes up to $500 ($1,000 if filing jointly).
-Home Sale Exclusion: To claim the exclusion, you must meet the ownership and use tests. This means that during the 5-year period ending on the date of the sale, you must have owned and lived in the home as your main home for at least two years. If you have a gain from the sale of your main home, you may be able to exclude up to $250,000 of the gain from your income ($500,000 on a joint return in most cases). If you can exclude all of the gain, you do not need to report the sale on your tax return. If you have gain that cannot be excluded, it is taxable. Report it on Schedule D. You cannot deduct a loss from the sale of your main home. See Publication 523 for details.
-Elderly or Disabled Tax Credit: Some low-income elderly or disabled individuals are entitled to a special tax credit. To be eligible, you must meet income limits.
-Mortgage Interest and Remodeling: If you remodeled your existing home, you may deduct state sales tax for building materials if you’re itemizing. If you bought your house, be sure to claim the interest paid on your mortgage points. If you’ve refinanced, you must distribute the points of interest over the life of the new mortgage.
-Energy-Saving Home Improvements: If you’ve made your home more energy efficient, there are tax deductions for that, too. You can receive a 10% deduction on costs up to $500, as well as 30% off the cost of certain major upgrades through 2016. This is known as the Residential Energy Efficient Property Credit. The credit covers 30 percent of the installation — including labor costs — of qualified residential alternative energy equipment, such as solar hot water heaters, wind turbines, and geothermal heat pumps.