Common-sense tax deductions that most average folks can take?

In My Humble Opinion
1

Many of us are getting our W-2 forms this month, which means it’s time to start thinking about tax preparation.

I recently had a conversation with a friend about tax prep, and he turned me on to the idea of looking into ditching the 1040-EZ form and claim more deductions. He said there was more paperwork and that he needed to hire an accountant (not, say, H&R Block), but for his efforts, he netted $2,000-$3,000 more in federal refunds every year.

My financial and familial situations are similar to my friend’s – Married, both have one child, both live in rentals, and we both have similar gross salaries. I don’t know if employer takes out too much tax and that’s why he gets fat refunds. I suspect that my employer takes out too little tax from my checks, though I’m not clear on why.

My friend mentioned deduction things like medical expenses (esp. prescriptions), work-related professional training, and gas and repairs for “to-and-from work” vehicles, clothing for work, among others I can’t recall right now.

At first I objected that I wasn’t an avid receipt packrat, and so I couldn’t take advantage of any of that. He told me that was no problem: what he does is pay for everything he can on one credit card so that his CC statement serves as his record of what he spent where. It just so happens that I do the same thing, except with a debit card. And I have access to records of my debit card transactions for all of 2003 – I just don’t have all the receipts from my mechanic, our doctors, etc.

Furthermore, he intimated that when filing, an estimate of a given claim was sufficient anyway – so specific cash-register receipts from this place and that place were unneccesary. He felt that if he were audited, his CC statements would give him the proof he needed to satisfy the IRS.

What’s the Straight Dope on common-sense tax deductions for people with middle-class salaries? I’m not thinking about esoteric means of sheltering my income, like creating dummy corporations. I’m thinking about stuff just about anyone can deduct, but with which few people bother themselves.

Thanks in advance for any advice!

2

If you’re entitled to them, you might as well take them.

However, there’s a good chance you won’t get much. On the list you mentioned, I don’t believe you can deduct the cost of commuting to and from work; just the expenses of an actual business trip. IIRC, work clothing is only deductible if you are required to wear a uniform. Medical expenses are deductible, but they have to be a certain percent of your gross income in order to kick in.

And there’s no point in itemizing if you can’t scare up more deductions than the standard one. Most people can do it due to mortgage interest, but I’d be surprised if someone renting could get up to that amount.

Your friend is right about the receipts, though. The IRS doesn’t ask for them unless they decide to audit you. You usually just have to show the IRS some documentation to support your case.

To try it out, download a tax form and fill in a dummy schedule A. The instructions will tell you what each line means. See if you save enough to make it worth your while, then go to an accountant to do the actual form.

3

You can’t deduct the cost of clothing for work unless it’s part of a uniform required by your employer which the employer does not provide. E.g., a service-station attendant who is required to wear coveralls but has to buy them with his own money. And it can’t be clothing that you can use for personal purposes as well as work, e.g., women who work in an office where they require women to wear nylons cannot deduct the cost of the nylons. It doesn’t matter if they say, “But I never would wear them otherwise!”

I’d be very surprised if you can deduct the cost of gas and repairs for a car that you drive to and from work. If someone is a salesperson and is required to use their own car for business purposes, that’s one thing. But driving to work? I don’t think so.

Certain unreimbursed medical expenses are deductible as long as they are a certain percentage of your AGI, somewhere around 3%? I’m sure some Certified Tax Person will be here shortly to clarify.

Do you volunteer anywhere? You can deduct $0.14 per mile for travel to and from your volunteer job.

If your employer isn’t taking out enough taxes, it’s probably because you didn’t claim the correct number of deductions on your W-4. Might want to check into that.

4

I am not an accountant, and this is not tax advice. Having said that, I have an accountant do my taxes, and he tells me that commmuting costs to your normal place of business are not tax deductable. (Business travel beyond that point may be - depends on the situation.)

(A number of years ago - I was in business for myself at the time - I had an accountant suggest that I open a PO box, make my first trip of the day be a drive to the (nearby) postoffice to pick up my mail, declare that to be my “normal commute”, and deduct the cost of all other business-related travel (such as my normal commute to my then-client’s office). That particular accountant also made a number of other tax suggestions that I thought were questionable, so I ended up not following any of them.)

5

Inquiring further on this point, I’ve just learned the deal. An online acquaintance of mine is in construction, and he drives all around the area from site to site. He deducts for the travel to sites, but not to travel to his office.

6

My wife is a writer, so our taxes are more interesting than most. We used to use an accountant, but we’ve found that for our purposes (and it sounds like yours) tax software does just as well. You still need to do good record keeping in any case, but it is a lot cheaper.

IANAA, but I did look into travel costs. it is correct that you cannot take off the mileage for commuting, but you must also subtract commute miles from the miles from home to a job site.
Say your office is 5 miles away, but you travel in your own car to a place 20 miles away. You can take off only 15 miles, not 20. If you do this, you need to get a mileage book, and record your mileage at the beginning and ending of the year.

Get receipts for all charitable contributions. Don’t forget professional dues and publications. What other people have told you about medical expenses is correct. We’ve never gone above our limit. What has worked for us is a pre-tax medical expense account. Your employer takes out money pretax, and you file for any expenses beyond what insurance covers. It has been expanded to cover OTC drugs also. It was great in paying off the cost of our daughter’s braces. You need to be accurate, since you lose the money you put in that you don’t file for.

For the most part, H&R Block ads about getting hundreds of bucks back are just ads. I don’t think the average person, without a lot of life changes like job search or moving, that is not self-employed doesn’t get a lot of fancy breaks. If you’re really nervous, use an accountant one year, keep the records, and do it yourself the next year.

7

Not nervous about being audited, really … more like I’m anxious about missing out on a few grand in tax refunds.

One thing I’ve just learned too – I’ve been filling out the form 1040-EZ for “Single and Joint Filers With No Dependents” the past few years (before the baby). I should have been claiming my wife and I as our own dependents … right?

In any case, since my wife did not work in 2003, she should be claimable as a dependent just as well as my daughter. Gotta use the right form and get myself versed on the proper deductions.

8

My wife doesn’t work outside the house, I’m a careful self-tax-preparer but I’ve never found that the rules let me claim her as a dependent. If you’re filing jointly, and you should of she hasn’t been employed, then you claim her as part of your standard deductions.

You know, 1 for free, 1 for you, 1 for her, 1 each for your kids.

IIRC, she’s not a dependent, though, in the same way your kids are.

9

… if my wife had no income in 2003, wouldn’t she be my dependent?

And what’s the difference between claiming her as a dependent vs. claiming her as a standard deduction?

10

Here’s one way the OP can make some dough: drop a dime on his friend to the IRS and collect a reward!

Just use tax software. It’s about $15. It’ll tell you what you can or cannot do. There’s also some online forms at the IRS web site that you can fill out if it’s not too complicated.

Note that itemizing deductions doesn’t work for most people unless you have a good sized mortage. We refinanced and now we’re back to standard deduction.

The current tax advisor commercials are ridiculous. They say the average extra savings of those that had them was huge. But they don’t mention that that is very, very few people and rich ones at that. I bet 99% of the reviews they did were of the type “Line 33 says you’re not rich, no savings, next.” There is no reason for them to waste time checking tax forms of non-rich people. It’s the rainfall effect. They are losing business bigtime to the software programs, they are getting desperate.

11

To clarify a few misconceptions in this thread:

  • Your spouse is never counted as a “dependent”.

  • You do, however, get an “exemption” for yourself, your spouse, and each dependent. The exemption this year is $3050 per. (This acts as a reduction to your total income before the tax is calculated). If you’ve filled out the your tax return yourself in prior years and carefully followed the instructions, you’ve probably calculated these exemptions properly.

  • The above is an entirely separate animal than the “standard deduction vs. itemized deduction” business. This is a separate line item (that ALSO is a reduction to your income before tax is calculated). Generally, married folks get a standard deduction of $9500. If your mortgage interest+charity + state and local taxes paid+a few other things add up to MORE than $9500, you take this “itemized” total instead.
    Generally most people who don’t own a house can forget all that jazz about work expenses, commuting, medical expenses and so on, because they won’t total up to more than $9500 (it’s $4750 for single people). There’s a little more to it than that, but that’s the basic gist.

12

OK, I’m gonna run roughshod through this thread spitting out tax advice where I see fit. I am a tax lawyer, but I’m not your tax lawyer, and you’re not my client, so don’t rely on any of the following advice (which is given for general informational purposes only). Here goes:

My general advice on how to make sure you’re getting all the deductions and credits you are entitled to is to just get TurboTax or go to www.turbotax.com and use TurboTax on the web. It uses a question-based format and then fills the forms out for you, which you then send over the internet to the IRS. If you’re due a refund and you provide your bank account info on the forms, then you’ll usually get the refund really quickly (like 10 days).

The other posters are correct that you cannot deduct expenses related to (1) commuting to work (or repairs on a car you use to commute to work) or (2) clothes for work. “Work-related professional training” is a difficult issue, so I’ll only address it if you actually need me to.

You can only deduct those medical expenses that exceed 7.5% of your gross income during a taxable year, so I hope that you don’t have any you can deduct. Also, lots of other deductions are limited to an amount that exceeds 2% of your gross income, so if you make $60,000, I wouldn’t worry about missing out on deductions for the $100 you spent on this or that because it may be the case that you’d’ve had to spend over $1200 to get a deduction for it.

You cannot claim your spouse as a dependent, but you and your spouse are both entitled to a personal exemption, and the amount of the personal exemption ($3,050) is the exact same as the amount of the dependent exemption. The standard deduction for you and your wife if you file as married filing jointly (which you should) is $9,500. So, you’ll get two personal exemptions (one for you, one for the wife), one dependent exemption (for the kid), and you and your wife can take the standard deduction unless your itemized deductions exceed the amount of the standard deduction, which is extremely unlikely for you guys since you don’t pay mortgage interest or real estate taxes.

13

Don’t know if this applies to the OP’s situation, but you can deduct mileage & parking if you work 2 different jobs the same day. Like 2 part time jobs or teaching night classes after work…that sort of thing.

14

I do use an online service to do my taxes, but not Turbo Tax. I’ve heard that Turbo Tax tries to sell other deduction-milking programs on top of their basic service.

…

After much research and asking around, here’s what I know I’ll get this year:

  • Standard deduction for married couple

  • Personal exemption for myself

  • Personal exemption for my wife

  • Dependency deduction for my 9-month-old daughter

  • $1000 Child Care Credit for my daughter
    … and that’s it. My finances have no frills … in fact, none of the following documents apply to me:

1098-T
1099-INT
1099-DIV
1099-B
Stock purchases
1098 (mortgage interest)
RE Tax bill
Charity contribution receipts
Proof of gambling losses
Self-employed financial records
Settlement Statement from home purchase/home sale/refinance

Guess my taxes are far simpler than most. It’s just that I hear most people I know getting huge tax returns every year – I had been wondering what I’ve been missing out on.

…

Thanks for the advice, all! Good stuff.

15

Other people may be getting bigger returns because they have more taxes witheld to begin with, not necessarily because they have more deductions. If they are in similar financial situations as you, it may well be that you are just getting more of your money each paycheck, and they are getting their money back because they overpaid.

Of course, if they have a mortgage, especially a new one with lots of interest payments, that could make a big difference, even if all else is equal. Other things that have big effects are number of dependents and possibly student loans. Most people who don’t own businesses or have side incomes have fairly straightforward taxes, and as others have pointed out, there aren’t a lot of ‘hidden’ deductions out there for them.

16

Isn’t the defintion of dependent significant when the potential exemption (not a spouse) is making money? I get to claim my daughter in college since I pay most of her support. There is also the issue of what the kid can claim on her taxes. The instructions on this are actually pretty clear. With a baby, the OP doesn’t need to worry about that.

I use the off-line TurboTax, and they try to sell you all kinds of stuff, but it is easy to skip them.
We just used it to check to see if we needed to make another estimated tax payment - that kind of experimenting is great

When using software, is there ever a good reason to use EZ? It seems that you might miss stuff. Does the software tell you to use that form?

I did save money once using tax software, but for the state form, which is very confusing in places. I believe it had something to do with deductions for tax payments, but I saved a couple of hundred bucks ona $15 investment in the state tax software, so I’ve been using it ever since.

17

Everyone (except Velma) seems to be playing the wrong game here.

The Goal should not be to get a bigger refund, but to pay the lowest net taxes legally possible.

18

I’ve been paying the IRS the last few years because my employer has been taking too little out. So my take-home pay is probably maximized.

However, if I can turn it around this year and benefit from both the greater take-home pay AND an actual refund (better yet … a handsome one), then I will feel a lot better about tax time.

19

It’s not likely to happen unless you have a major financial change. Having a new dependent will give you a bigger deduction though, so if you were paying a little in past years you might not owe this year or you might even get a little back. However you look at it though, you have to pay your taxes one way or the other. If you’re not paying them weekly out of your paycheck then you have to pay them come tax time. If you want a bigger refund, you’ll be paying higher taxes out of your paycheck.

People who get thousands back at tax time usually do so because they get more taxes taken out of their checks all year. They are not making money by doing this, they are just getting it in one big chunk instead of over a year in paychecks.

I understand you are just making sure that you are getting all the deductions you are allowed, and that is good. You’ll need some huge deductions to get a big refund though, if you are getting the most out of your weekly paychecks. Something like a mortgage could make the difference, but itemizing things like milage and charitable donations are probably not going to get you over the standard deductions unless you have major expenses here.

20

The Child Care Credit can add up if you have a kid in day care … and it can also apply to day camp (not sleepover camps) in the summertime. It may even be available to short form filers, but I am not sure about that one…