Maximize Your Tax Return
Tax season is upon us, and over the next several weeks, many of us will spend a great deal of time and - often - a great deal of money preparing our annual income tax returns.
In recent years, President Bush and Congress have worked together on several tax relief measures to make the season a little more tolerable - such as legislation to reduce tax rates across the board, to provide relief from the marriage penalty and the death tax, and to encourage greater investment by America's small businesses. But just because we're paying less to Uncle Sam doesn't mean we still shouldn't seek larger tax refund checks. I'd like to share with you a few often-overlooked tax breaks that could lead to a bigger refund for you and your family, even if you don't itemize deductions on your federal tax return.
First, some background. These tax breaks come in the form of either tax credits or tax deductions. A tax credit reduces your taxes dollar for dollar. A tax deduction reduces your taxes by a percent of every dollar you're allowed to deduct. For example, a $100 credit reduces your taxes by $100. But a $100 deduction reduces your taxes by $100 multiplied by your tax bracket. So, if you're in the 25 percent bracket, your $100 deduction will reduce your taxes by $25 ($100 X 0.25).
Child care costs. If you enroll a child in a daycare center, your employer may offer child care benefits. Some employers are willing to reimburse employees with tax-free dollars for child care expenses up to $5,000. If you receive these benefits but your actual expenses exceed the amount for which they are reimbursed, you may be able to take a credit for a percentage of those expenses not reimbursed. Depending on your income, you may take a credit of between 20 percent and 35 percent of un-reimbursed expenses up to $3,000 for one dependent and $6,000 for two or more.
Student loan interest. If your adjusted gross income is below $130,000 and you're married filing jointly - or if your income is less than $65,000 and you're single - you may be able to deduct up to $2,500 in interest annually for as many years as it takes to repay an outstanding student loan.
Moving expenses. If you moved in 2003 to take a new job or to follow your employer to a new location - and you weren't reimbursed - you may be able to deduct your moving expenses on your federal return.
There are some qualifications you must meet, however, to take the deduction. First, your new office must be 50 miles farther from your old home than your old office. For example, if your commute to work used to be 10 miles, you need to show that your commute from your new office to your old home would have been at least 60 miles to justify the deduction of moving expenses.
You also need to work full-time for your employer for at least 39 weeks during the 12 months right after you move. If you moved in November of last year, for example, you still may deduct the move. However, if you end up working less than the required time, you eventually must amend your 2003 return or report the amount deducted as income on your 2004 return.
Many other tax credits and deductions that I haven't mentioned here - from tax breaks on mortgage interest to benefits for those attending a college or a university - may be helpful to you and your family at tax filing time. Talk with your tax preparer, take a look at the Internal Revenue Service's website at www.irs.gov, or call the IRS Taxpayer Advocate toll-free at 1-877-777-4778 for more information. Tax season is never a happy one, but if you maximize your return, it may get just a little better.