13 Surprising Tax Breaks You're Probably Missing
When it comes to saving, most of us consider an afterthought. But John Vento, a and author of the upcoming book "Financial Independence (Getting to Point X)," says that with eating up 35% or more of many people's paychecks, planning for them can be the most important step in building wealth.
"The government requires you to pay no more than you owe," he says, "but the majority of people pay much more simply because they don't take time to understand."
Many of the breaks target tiny constituencies and specific companies. There's thefor foreign bettors on they make gambling over the Internet on U.S. horse and dog races. Another benefits companies that film movies in the United States. And you can write off the cost of shipping your pet when you move for work as part of your other moving expenses.
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Along with breaks that help out a small group are a few you might actually take advantage of. We contacted tax and financial specialists about their favorite obscure deductions lodged in the tax system. Here are 13 lesser-known activities that can get you athis year:
1. Donate to charity from your fiscal cliff deal passed in early January resuscitated an expired provision that allows people age 70.5 or older to donate up to $100,000 from their to a qualified charity, without having to pay on the transfer. For people who already itemize their deductions, the provision makes no difference -- if they withdraw from their IRA and then donate it, they're taxed on the withdrawal and then deduct the donation. But those who don't itemize also don't get charitable deductions, so taking advantage of this provision means they'll save on their taxes, says Beth Shapiro Kaufman, an planner at tax and legal services firm Caplin & Drysdale. Another group helped, she says, are high-income earners whose total deductions are capped by the Pease limitation enacted under the fiscal cliff legislation -- when they donate straight from their IRA, the donation doesn't count against their total, effectively skirting the Pease cap.. The
2. Pay for your child's medical expenses and education. A parent or grandparent can pass along up to $5.12 million to their children or grandchildren over the course of their lifetime, or $14,000 per year (up from $13,000 in 2012), without incurring an . But for those really well-off parents who want to give even more, there's a to get around even those limits -- pay for their children's medical care or tuition, says Clarence Kehoe, a partner at firm Anchin, Block & Anchin. Qualifying payments, which don't count against the lifetime or annual limits, have to be made directly to the medical provider or school.
3. Foster a pet. If you foster cats and dogs while they wait for placement in a permanent home, you can deduct expenses like litter, food, vet bills, paper towels, and possibly even your mileage to the vet,Mark Steber, chief tax officer at Jackson Hewitt Tax Service. The organization you're working with has to be a 501(c)(3) charity.
4. Go for alternative medical treatments. In 1955, a ruling by the deductible medical expense. A swimming pool can even be deducted in certain cases if it can be shown to be medically necessary, says Jode Beauvais, a at firm Moss Adams. But, Givner, if a medical benefit can be obtained in a cheaper way, you could have trouble. That's what happened in a 1969 case in which a tried to deduct expenses related to playing golf since his doctor had recommended it to treat his emphysema. The won by showing that taking walks would have done him just as much good.allowed medical care to be provided by practitioners of Christian Science, says Bruce Givner, a tax lawyer at Los Angeles-based Givner & Kaye, and it has since been extended to other forms of alternative medicine like acupuncture, vitamins, and herbal supplements if these are prescribed by a "medical practitioner." In a 1980 tax case, songs by a Navajo medicine man were approved as a
5. Pay for private mortgage insurance (which can run anywhere from $50 to $220 a month on a loan of $250,000). Most people know about the deduction for interest, but fewer have heard of the insurance deduction, says Rebecca Pavese, head of Palisades Hudson Financial Group's tax practice.. The fiscal cliff deal also revived a provision that allows to deduct their premiums for private
6. Move away for your first job. The costs of moving for a job are deductible if you pass the distance test (at least 50 miles from your old home) and the time test (at least 39 weeks of full-time work during your first year at the new employer). Steven Warren, a at Minneapolis-based Lehrman, Flom, and Co., points out that what's not well known is that recent graduates also can deduct their costs if they move to get that first job. Self-employed workers qualify as well.
7. Drive for charity. Any driving you do related to charity work is deductible at 14 cents a mile plus parking costs, says Warren. Other out-of-pocket expenses you incur in connection with charity work also are also normally deductible.
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8. Invest in retirement to get both a deduction and a incomes can get both a deduction and a tax credit for putting away in their retirement plans, says Todd Koch, partner at firm John Knutson & Co. Almost everyone gets a deduction for in a qualified plan like an IRA -- but some investors also get the Saver's , which provides a tax credit of up to $1,000 to individuals and $2,000 to married couples for saving. The income limits to qualify for the credit are $28,750 for individuals; $43,125 for heads of household; and $57,500 for couples. Though approximately 57 million households qualify for the credit, in a 2012 Transamerica Center for Retirement Studies' survey, less than 20 percent of people had heard of it.. with limited
9. Join a native Alaskan tribe and hunt whales. Captains of boats involved in subsistence hunting of endangered bowhead whales in Alaska are in luck -- the IRS lets them deduct up to $10,000 of their expenses for buying and maintaining gear, feeding their crews, and distributing their catch, Steber. In practice though, this isn't a job for just any boat captain: That word "subsistence" matters. It means hunting to provide food or materials for your family, and the federal government allows only certain native tribes of Alaska to hunt bowhead whales as part of traditional cultural practices.
10. Build a NASCAR track. A report last summer by Republican Senator Tom Coburn noted that the cost of constructing a racetrack can be depreciated over seven years, compared with the typical 15 to 39 years for similar property. One of the main of the break is the International Speedway , owners of the Daytona Speedway and 11 other NASCAR tracks, according to the report -- estimates have the benefit to the company at around $38 million.
11. Donate money to a good cause, you can get more bang for your buck by giving instead of , says certified Eric Heckman, author of "Worry Less Wealth." If you donate , you get to deduct that amount in most cases. But if you donate that has appreciated in value, not only do you get to write off the fair-market value, but you also avoid the capital-gains tax on the sale.to charity. If you'd like to give
12. Work overseas in a low-tax country. If you work overseas, the first $95,100 of income are excluded from U.S. taxes so that you avoid paying twice -- once in-country and once in the U.S. But that exclusion recognizes no distinction between low- and high-tax countries, accounting firm Marcum LLP. So if you're earning money in places like Monaco, Kuwait, or Bermuda, where there's no , your first 95 grand are .Bob Spielman, a partner at
13. Harvest your harvesting" allows investors to reduce their IRS payments substantially -- but it's one that most people ignore, says Frank Armstrong, founder of advisory firm Investor Solutions. The strategy allows taxpayers to sell an like a at a loss and then use the loss to offset either capital gains on other or their regular (in the case of regular income, you can apply up to $3,000 of the loss in a single year). Best of all, any losses that you don't use now against other income can be carried forward to offset gains in future .losses. An important tax-saving practice allowable under the code called "tax loss
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