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Tax Deductions That Are Commonly Overlooked

Tax deductions can be tricky to understand if you're new to the finance world.

One of the biggest sources of confusion is knowing what you can and can't deduct from your taxes. Deductions can be a massive financial boon for a lot of people, yet not everyone files for them correctly. This causes people to miss out on money that should be theirs. We'll go over some of the most common tax deductions that are overlooked, so you don't get shortchanged when Tax Day comes.

Charitable Contributions

When you start regularly giving to charity, even if the donations are small, you'll want to start getting itemized receipts for your donations. These receipts will help you write off these charitable contributions on your taxes. You can even write off supplies that you bought for use in a charitable cause or any miles you drove on your car while in service to a charity. Make those donations to the Purple Heart Pickup with an open heart, but make sure you get your deduction on top of that.

Student Loan Interest Payments

Student loans take up a significant amount of a lot of people's money. If you're one of these people, make sure that you get a deduction on the amount of interest you paid off in the last year. What's important to remember is that even if you aren't someone's dependent, you can write off the money someone else gave you to pay for said student loans. If someone else helped you pay off part of your loan, don't think that means you can't still get a deduction on that sum.

Child and Dependent Care Credit

If you have a reimbursement account through your job that pays for child or dependent care, you might be forgiven for forgetting about this particular tax credit. However, you can use these funds for a tax credit if you file for them correctly. This is hugely important because this is an opportunity to receive a full tax credit, not just a deduction. You're losing money you could be directly receiving if you don't file for this credit.

Jury Pay Given to Your Employer

A lesser-known tax deduction that often gets overlooked is the money you can deduct from jury pay you gave to your employer. It may not be the most exciting thing to come out of jury duty, especially after handing over any money you receive to your employer, but you do get to deduct however much money your employer made you hand over after you finished jury duty.

Credit for Saving

While this credit is more for people that are working part-time or for those that have a retired spouse, you can get a tax credit for contributing to a 401(k) or another retirement savings plan. This is also a great incentive for those that are just starting out in their careers and need another reason to start saving for the future.

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The Easiest Way to Get Out of Tax Debt

Tax Relief

Tax debt can become a major source of stress. Wouldn't it be great to just make one payment and have all your tax debt disappear?

With an offer in compromise (OIC), that's actually possible. Whether you have major debt, are just getting started in your career, or are in another situation that has made it difficult for you to pay your tax liabilities, an OIC might be a great option to help you get back on track.

Pirsch Law

What is an OIC?

The IRS's website describes an OIC as an: "agreement between a taxpayer and the Internal Revenue Service that settles a taxpayer's tax liabilities for less than the full amount owed." Essentially, if an individual simply cannot pay their debt to the IRS, there is little chance of them being able to pay in the near future, and they don't own any significant property, they can offer the IRS a percentage of the money they owe, and if the IRS accepts, the individual's debt is settled.

However, taxpayers who can pay the liabilities through an installments or other means, generally won't qualify for an OIC. For an individual to qualify for an OIC, the taxpayer must have filed all past tax returns, made all required estimated tax payments for the current year, and made all required federal tax deposits for the current quarter if the taxpayer is a business owner with employees.

Who Qualifies for an OIC?

While this might sound like a very appealing way to resolve your debt, there are important stipulations to keep in mind. The IRS isn't going to accept any amount of money in exchange for waving your debt and generally won't accept an OIC unless the amount proposed is at least equal to the reasonable collection potential (RCP). The RCP is the combined value of the taxpayer's assets, such as real estate, automobiles, bank accounts, and other property. The RCP also includes anticipated future income.

Additionally, there are three reasons that the IRS would accept an OIC.

  1. Doubt as to liability. This is when there is a credible reason to believe that an individual's tax debt does not actually exist or is not as high as the IRS believes.
  2. Doubt as to collectibility. This occurs when a taxpayer's income and combined assets don't add up to the full amount of the tax debt.
  3. Effective tax administration. This is when there's no doubt that the tax debt is owed and that the full amount can be collected, but that doing so would economically cripple the taxpayer irrevocably.
If you think you may qualify, you can visit the IRS's page on OICs to learn how to apply. While this debt solution may only work for some, it's important to know your options when dealing with debt of any kind.


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What are Your Options if You Can’t Pay Your Taxes?

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With April comes spring and tax time.

In 2018, you'll need to file by April 17 or face fees. But don't sweat too much if you can't afford to pay all your taxes at once. The Internal Revenue Service, or IRS, is often willing to work with you to help you pay your taxes without being penalized. That said, it's best not to avoid filing or paying. This bill won't just go away, and you'll accrue more and more late fees and interest the longer you let it sit.

Option 1: Pay by credit card or get a personal loan

The IRS allows several types of payment for your taxes, including a credit card. This isn't the best solution overall. You're essentially trading debt for another type. But if your situation is that you are able to pay, but don't have all the funds right now, a credit card is probably your fastest solution. (Unless your tax amount is too much for your card, then you'll need to consider another option.)

Pay your taxes with your card, and then pay off as much of the balance as you can until you're paid again. You'll still accrue interest on your card, but this amount might be lower than what the IRS would charge if you failed to pay or entered into an installment plan. The same may go for a personal loan from your local bank.

The stress of tax season can be overwhelming, but there are a few options to consider undsgn.com

Option 2: Set up an installment plan

As long as you meet certain requirements, you can set up an installment plan with the IRS to pay over time. And depending on how much you owe, you can even apply without having to talk to a person. If your bill is less than $50,000 in individual income tax, penalties and interest, you can apply for an installment plan online. You can also apply with federal form 9465. If you owe more than $50,000, you'll have to talk to an IRS agent to find out your next steps.

You'll be charged associated fees for entering into a plan, but these will be less if you sign up online. And even less if you agree to direct debit each month. You have to file all your tax returns before you apply for an installment plan. You'll usually be notified within 30 days if you've been accepted.

If it were only so simple...assets.pcmag.com

Option 3: Ask for additional time

Based on your particular circumstances, you might be granted additional time to pay in full. You can make a request like this online, by calling, or by talking with an IRS agent in person. If you're insolvent or unable to pay due to circumstances beyond your control (like unemployment or disability), the IRS is willing to work with you on your payments. You might be eligible for an officer in compromise, which will let you pay less than the actual amount you owe. These options are completely dependent on your unique situation and you'll be able to determine your next steps by communicating with the IRS.

Taxes are never fun, but they don't have to be a financial strain. The IRS has several payment and financing options if you're unable to pay in full by April 17. In extreme situations, you can talk to an IRS agent about reducing the amount you owe or setting up a payment plan. The key is: don't let your taxes sit. If you fail to file by the deadline, your interest and late fee penalties will be more than if you do file and request a different financing option.

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