Every spring, taxpayers leave an estimated $1 billion on the table because they don’t take advantage of all the tax deductions and tax credits available to them.
Some of those tax deductions are common ones that are missed because taxpayers don’t itemize. But other deductions are new, not as well known, or complex.
Here are five tax deductions for both businesses and individuals to investigate before mailing your tax return to the IRS this year:
Research and Experimentation credit
The research credit was introduced in 1981 to increase business investment in the U.S., and has since been extended 14 times. This credit is worth an estimated $12 billion to companies every year, according to a recent article in the Washington Post.
But while the credit can offset many of the costs of research and development (including wages, contract research and supplies), it is highly scrutinized by the IRS. If you are spending large sums on product development and research, this credit is worth exploring.
But if you decided to file for the credit, make sure you are thorough in your documentation because there is a high likelihood that the IRS could have some follow-up questions.
Sales tax deduction
Nevada residents and residents of other states that do not have income tax, can benefit from the sales tax deduction. This deduction is of particular interest for people who made large purchases in the last year. A new car or other big-ticket items for which this deduction is used.
Child Independent Care credit
It is fairly well known that parents can deduct a percentage of the expenses of daycare. But did you know that summer camp expenses are also deductible under the child care credit?
The credit requires some expertise to calculate — it is based on a sliding-scale percentage between 35 percent and 20 percent — but don’t discount it. For many families, child care expenses for a year can add up to well over $10,000. Use this credit to recover some of those costs on your tax return this year.
American opportunity tax credit
Formerly named the Hope credit, this tax break reimburses some of the expenses of college courses or technical school training. Individuals making less than $80,000 and couples making less than $160,000 can qualify for the credit. The credit of up to $2,500 applies to tuition, fees and course material expenses. Up to $1,000 is refundable even to those who owe no taxes.
Residential Energy Efficiency tax credit
Did you put in a new energy-efficient furnace, hot water heater or woodstove last year? You might be eligible for up to $500 in tax credits that were put in place to incentivize energy conservation.
This program even rewards new insulation or new energy-efficient windows or doors. So before you file that tax return, think back on your home improvement projects all year and see if you can take home a few hundred more dollars for your energy-saving home upgrades.