The clock’s ticking on getting your taxes timely filed. While you’re going through your records trying to figure out what you can and can’t write off here’s five interesting tax benefits that are at your disposal which you may have been unaware of.
- That Friend Who Borrowed Money and Never Paid You Back (Non-Business Bad Debt)If you lent someone money and they never paid you back, there is some tax relief available to you. A non-business bad debt is a lending agreement made between you and someone who is not related to you, and also was not incurred in the course of doing business.
Repayment can’t just be overdue: you need to document your efforts to get your money back and have them handy such as email and phone records, letters from attorneys, and/or proof of hiring a collection agency. There also needs to be conditions that there’s no possibility of ever getting your money back, primarily if the borrower declared bankruptcy or died but also if they skip town and never speak to you again.
This is actually a capital loss as well, limited to $3,000 per year until all the unpaid debt is deducted.
- Professional Money ManagementDo you work with a professional investment adviser, hire an accountant to do your taxes, buy financial magazines to help you make investing decisions, or pay advisory fees on your brokerage account? All of these expenses are deductible.
Any expenses you incur for professional money management are allowable so long as they’re helping you earn taxable income such as dividends and capital gains. Advisory fees for tax-exempt investments aren’t deductible.
Tax preparation and advisory fees are also deductible along with any additional expenses and supplies used to prepare your return and pay your taxes like tax software, tax law handbooks, and convenience fees if you paid your tax bill by credit card.
- Donating Appreciated Stock to CharityGot a stock you’d like to cash in but don’t want to get burned on capital gains tax? Help out a cause you support by donating your appreciated stock to them.
The value of your deduction is determined by the fair market value on the date that you made your donation, not how much you bought the stock for. If that fair market value happens to be considerably higher than your purchase price, you get the double benefit of both avoiding capital gains tax and deducting the higher value as if you wrote the charity a check for that amount.
If the value of your stock is over $250 at the time of the donation, a letter or other acknowledgement from the charity is required.
- The Saver’s CreditSaving for retirement is considerably more difficult for those of low and moderate income. The Saver’s Credit came about to ameliorate this. Single filers who earned $30,500 or less in 2015 can take a tax credit worth 10-50% of their total contributions made to a 401(k), IRA, or other qualified retirement plan. Married couples must have $61,000 or less in joint income to qualify.
While Roth IRA owners do not get a deduction for contributions, they still count for the Saver’s Credit. Traditional IRA owners may benefit extra from the traditional IRA deduction worth up to $5,500 ($6,500 if age 50 or older), which can result in getting a larger Saver’s Credit than one would with a Roth IRA.
- Tax-Free Payroll Deduction for Childcare
Some employers offer a dependent daycare flexible spending account, which works as a payroll deduction going straight to childcare instead of paying out of pocket.
The child and dependent care credit is usually worth up to $600 per child with a limit of two children, which depending on your income and family size may not be as major of a benefit as being able to have up to $5,000 in tax-free income that was allocated to childcare.
If such a plan is available to you and you are married filing jointly, both spouses must work unless one is a full-time student or disabled.
