Lower your income tax bill by taking advantage of every single deduction you can… and that includes some rarely-used but totally legit tax breaks that can put more money back in your hands. Each of these little-known deductions comes with its own set of twists and turns, so make sure you follow the rules and keep solid records to avoid any IRS snafus.
- Job search expenses
If you’ve been looking for a job, you have tax-deductible expenses. First, the main rule: It has to be the same line of work as your most recent job. So, for example, if you’re a nurse, you have to be looking for a nursing job – not an office job. Other rules to follow: There can’t be a “substantial” time gap between your last job and your job search, or if you’re looking for your first job. When your search fits into the IRS requirements, keep track of these expenses while you look for a new job:
- Résumé costs, including preparation, printing, and postage
- Employment agency fees
Transportation covers any travel for interviews, meeting with employment counselors, or bringing a stack of résumés to the post office. Keep track of mileage, tolls, parking, cabs, airfare – every travel-related expenses you incur while you’re looking for a job. These unreimbursed expenses get reported in the Miscellaneous Deductions section of Schedule A. For more information about Miscellaneous Deductions, look here.
i IRS Alert
This is a deduction the IRS looks at closely. If you travel while looking for work, do not include any expenses related to “personal time” during your trip.
- State and local sales taxes
Most people don’t know this, but you have the option of deducting either state/local income taxes or state/local sales taxes you paid during the year. So if you made some major purchases during the year or live in a state with no or very low income taxes, your sales tax payments could be greater than your state/local income taxes paid for the year. If you go with the sales tax deduction, make sure you keep all of the relevant receipts for at least three years. You can find out more about this tax topic here.
- Work-related moving expenses
If you had to relocate for a new job, you may be able to deduct your unreimbursed moving expenses on your tax return. Best of all, this deduction comes straight off of your income, right on the front page of your Form 1040. So you can subtract these expenses even if you don’t itemize deductions.This deduction also comes with a set of strict IRS rules:
- You have to move close to your new job, and move near the start time, which in IRS terms means within one year of your start date.
- Your new workplace has to be at least 50 miles further from your old house than your old job was. So, for example, if you lived 15 miles away from your old job, the new job has to be at least 65 miles away. (If you didn’t have a job before, the new job just has to be 50 miles away.)
- You have to keep the job for a while. If you’re an employee, you have to work at the new job full-time for at least 39 weeks during the first year of moving. For self-employed people, the time requirement is working full-time for at least 39 weeks during the first 12 months AND a total of at least 78 weeks over the first 24 months in the new home.
Some exceptions may apply to those rules (like becoming disabled or getting fired) that let you keep the deduction even if you don’t meet the full-time test. If you do meet all the tests, here are some of the expenses you can deduct:
- Packing, crating, and transporting your household goods
- Costs associated with connecting or disconnecting utilities related to the move
- Costs to ship your car to the new place (if you don’t drive it there)
- Mileage, tolls, and lodging associated with driving to the new home
- Transportation expenses to get to the new home (if you don’t drive)
- Costs to move your pets
- Up to 30 days worth of storing and insuring your stuff while it’s between homes
You can find more details on the Moving Expense deduction in IRS Publication 521.
Commuting to a second job
Normally, commuting expenses aren’t deductible. But if you’re working two jobs, the costs of getting from the first to the second are fully deductible from your taxes. The catch: You have to go straight from your first job to your second without going home in between.
This expense gets reported with other employee expenses on IRS Form 2106.
- Gambling lossesGambling losses alone won’t lower your tax bill – but they can be used to offset any winnings. Whether you won money from a scratch-off or at a slot machine in Vegas, you have to pay taxes on that. But chances are, you’ve also bought lottery tickets that didn’t win, or played some losing hands. All of your losses can be deducted from your winnings, keeping extra taxes to a bare minimum…maybe even zero. But like all things IRS, you need to have proof of your losses. So hold on to those losing tickets, receipts, or statements – you’ll need some kind of documentation (like a journal) of your wins and losses.Gambling losses get reported under Miscellaneous Deductions on Schedule A. For more information about deducting gambling losses, check out IRS Publication 529.
All of these deductions are perfectly legal. And if any of them fit your situation, take advantage of the tax benefit while you still can.