tax advice

It's a pretty good feeling to get that tax return check in the mail, but a pretty bad one to realize you forgot to include a tax deduction that would have lowered your tax bill or increased your returns. With the ever-increasing complexity of the tax laws, filing taxes just gets more and more complicated. To help simplify things, we assembled a list of some of the most commonly overlooked tax breaks you should take advantage of.

Student Loan Interest

Student loan payments can be a significant part of your monthly expenses, but luckily you can claim up to $2,500 in interest paid on student loans for higher education. This deduction is available to you if you're paying interest on a student loan for yourself, your spouse, or a dependent child.

Health Insurance Premiums

Health care is expensive, and only getting more expensive. Luckily, the IRS takes this into account. Deductible medical expenses have to exceed 10 percent of your adjusted gross income (AGI) to be claimed as an itemized deduction in 2019, but if this is true of you, you're looking at some major savings.

Social Security Tax By the Self-Employed

Every employed American has to pay into social security, including the self-employed, who are then eligible for a deduction on a portion of this tax. Usually, employers pay a portion of social security, but when you're self-employed you're paying the portion of the employer and the employee, which amounts to 12.4% on up to $128,400 of earnings.

Unusual Business Expenses

It may seem obvious that you can write off the cost of business expenses, but you may not know how many different kinds of business expenses that include. As Turbotax points out, "A junkyard owner, for example, might be able to deduct the cost of cat food that encourages stray cats to hang around and keep the mice and rats away. A bodybuilder got approved to deduct the body oil he used in competition."

Charitable Donations

While most taxpayers probably know that you can write off major charitable donations, many don't know that you can also write off smaller ones. Additionally, it's possible to write off expenses paid out of pocket that allowed you to spend time working for a charity, such as hiring a babysitter for your children so you can volunteer at a soup kitchen. Or, if you drove your car to charitable activities, you can deduct 14 cents per mile, plus parking and tolls paid.

Earned Income Tax Credit (EITC)

While a large portion of Americans qualify for the EITC, 25% of people don't claim it. This is actually a tax credit, ranging from $519 to $6,431 for 2018. You likely qualify for this credit if you're low income, or if you recently lost a job, took a pay cut, or worked fewer hours during the year.

Medical Costs

According to the affordable care act, taxpayers under 65 who accrue medical expenses greater than 10% of their annual income can earn a significant tax deduction. To reach this 10% threshold, you can tally up medical expenses that may not seem obvious, like transportation costs to and from the hospital.

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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.