Seven Tax Deductions You Might Not Know

You are not a better American if you pay extra taxes. Most people do pay a lot more than they have to. While this article will not share proprietary tax deductions, these reminders might help you keep more in your pocket.

Here are eight tax breaks often overlooked by taxpayers, which could save you money. Some are for those who itemize only, others any filer can claim.

1. Many medical costs

It is often difficult for taxpayers to reach the 10 percent of adjusted gross income threshold(7.5 percent for seniors 65 or older) required before you can claim any medical expenses. But adding in miscellaneous medical costs might make it easier. Some miscellaneous costs include travel expenses to and from medical treatments, insurance premiums you pay for from already-taxed income, and even alcohol or drug-abuse treatment programs. Read the list of deductible medical expenses.

2. Charitable Giving

You can’t deduct the value of your time spent volunteering, but if you buy supplies for a group, the cost of that material is deductible. Similarly, if you wear a uniform in doing your good deeds, for example as a hospital volunteer or youth group leader, the costs of that apparel and any cleaning bills also can be counted as charitable donations.

Also deductible is use of your vehicle for charitable purposes, such as delivering meals to the homebound in your community or taking the Scout troop on an outing. The IRS will let you deduct that travel at 14 cents per mile.

3. Job hunting costs

While college students can’t deduct the costs of hunting for that new job across the country, already-employed workers can. Costs associated with looking for a new job in your present occupation, including fees for resume preparation and employment of outplacement agencies, are deductible as long as you itemize. The one downside here is that these costs, along with other miscellaneous itemized expenses, must exceed two percent of your adjusted gross income before they produce any tax savings. But the phone calls, employment agency fees and resume printing costs might be enough to get you over that income threshold.


  1. Child, and more, care credit

Millions of parents claim the Child and Dependent Care Credit each year to help cover the costs of after-school day care. However, you shouldn’t overlook claiming the tax credit for childcare costs during the summer. This tax break also applies to summer day camp costs. The key here is that the camp is a day-only getaway that supervises the child while the parents work. You cannot claim overnight camp costs.

If you have an adult dependent who needs care so that you can work, those expenses can be claimed under this tax credit.

5. Moving expenses

Most taxpayers know they can write off many moving expenses when they relocate to take another job. But what about your first job? Yes, the IRS allows this write-off then, too. A recent college graduate who gets a first job at a distance from where he or she has been living is eligible for this tax break.

6.  Mortgage refinancing points

When you buy a house, you are entitled to deduct the points paid on the loan on your tax return for the year of purchase. But if you refinance your home loan, you might be able to deduct points incurred when you refinance your home too, as long as you use refinanced mortgage proceeds to improve your principal residence.

7. Educational expenses

The Internal Revenue Code offers many tax-saving options for individuals who want to further their educations. The tuition and fees deduction can help you take up to $4,000 off your taxable income and is available without having to itemize.

The Lifetime Learning Credit could provide some students (or their parents) up to a $2,000 credit.

Don’t forget the American Opportunity tax credit, which offers a dollar-for-dollar tax break of up to $2,500. This new education tax break was created as part of the 2009 stimulus package as a short-term replacement for the Hope tax credit and subsequently was extended through tax year 2012.

Some of these tax breaks can save some filers a nice chunk of tax money. With others, the savings might be relatively small. But when it comes to taxes, every bit of savings helps. So make sure you don’t overlook any of these possible tax breaks as you finish up your 2015 return.

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Using Captive Insurance Companies for Savings

Small companies have been copying a method to control insurance costs and reduce taxes that used to be the domain of large businesses: setting up their own insurance companies to provide coverage when they think that outside insurers are charging too much.
Often, they are starting what is called a “captive insurance company” – an insurer founded to write coverage for the company, companies or founders.

Here’s how captive insurers work.

The parent business (your company) creates a captive so that it has a self-funded option for buying insurance, whereby the parent provides the reserves to back the policies. The captive then either retains that risk or pays reinsures to take it. The price for coverage is set by the parent business; reinsurance costs, if any, are a factor.

In the event of a loss, the business pays claims from its captive, or the reinsurer pays the captive.

IRS Criminal Investigation Department Audits Section 79, Captive Insurance, 412i and 419 Scams

IRS Criminal Investigation (CI) has developed a nationally coordinated program to combat these abusive tax schemes. CI’s primary focus is on the identification and investigation of the tax scheme promoters as well as those who play a substantial or integral role in facilitating, aiding, assisting, or furthering the abusive tax scheme, such as accountants or lawyers. Just as important is the investigation of investors who knowingly participate in abusive tax schemes.
First the IRS started auditing § 419 plans in the 1990s, and then continued going after § 412(i) and other plans that they considered abusive, listed, or reportable transactions, or substantially similar to such transactions. If an IRS audit disallows the § 419 plan or the § 412(i) plan, not only does the taxpayer lose the deduction and pay interest and penalties, but then the IRS comes back under IRC 6707A and imposes large fines for not properly filing.

Did you Know? Abusive Tax Shelters Again on the IRS “Dirty Dozen” List of Tax Scams for the 2015 Filing Season

“The IRS is committed to stopping complex tax avoidance schemes and the people who create and sell them,” said IRS Commissioner John Koskinen. “The vast majority of taxpayers pay their fair share, and we are warning everyone to watch out for people peddling tax shelters that sound too good to be true.”
Taxpayers who previously adopted 419, 412i, captive insurance or Section 79 plans are in big trouble.

In recent years, the IRS has identified many of these arrangements as abusive devices to funnel tax deductible dollars to shareholders and classified these arrangements as “listed transactions.”

Read the Rest HERE

Don’t Become a #MaterialAdvisor

Accountants, insurance professionals and others need to be careful that they don’t become what the IRS calls material advisors. If they sell or give advice, or sign tax returns for abusive, listed or similar plans; they risk a minimum $100,000 fine. Their client will then probably sue them after having dealt with the IRS.

In 2010, the IRS raided the offices of Benistar in Simsbury, Conn., and seized the retirement benefit plan administration firm’s files and records. In McGehee Family Clinic, the Tax Court ruled that a clinic and shareholder’s investment in an employee benefit plan marketed under the name “Benistar” was a listed transaction because it was substantially similar to the transaction described in Notice 95-34 (1995-1 C.B. 309). This is at least the second case in which the court has ruled against the Benistar welfare benefit plan, by denominating it a listed transaction.

Read the Rest Here