neezh
- July 16, 2022
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3 Often Forgotten or Overlooked Tax Deductions
3 Often Forgotten or Overlooked Tax Deductions
Each year tax deductions can save the vast majority of American taxpayers thousands of dollars in taxable income. While the IRS is only interested in claiming what the agency feels it is owed according to the tax code, there is an important caveat-determining tax exceptions and deductions is the taxpayer’s responsibility. This is received wisdom among certified public accounts, IRS enrolled agents and other tax professionals hired to help taxpayers with their federal tax returns. Because tax prepares such as the enrolled agent are often former IRS workers, and are required to enroll in tax continuing education courses as a condition of their ongoing EA certification, they are some of best tax professionals to tap for help with claiming often overlooked and legal deductions for taxes.
Below is a detailed look at three such deductions:
Student Loan Interest
Taxpayers are able to deduct up to $2,500 in interest paid on qualified student loans (used for post-secondary education, such as college or vocational school) for themselves, their legal partners or dependents. This deduction, which doesn’t need to be itemized, should be taken as an “adjustment to income” on Page 1 of Form 1040. Student loan interest paid is reported on Form 1098-E. Typically, the Social Security number and name of the person with the “primary obligation” will appear on this form.
Caveats
But there are a few caveats to this deduction. To claim this deduction, taxpayer must have entered into a “primary obligation” to repay the loan, and must make the payments. In scenarios where it is the student who is legally obliged to pay the loan, but the parents make the actual payment, neither the parents nor the student can claim this deduction.
Moreover, if dependents are listed on their parents’ tax returns as dependents, they are unable to deduct student loan interest, even if the primary onus to pay the loan belongs to them and they make the payments.
Interest on loans from a related party or from a qualified employer plan, such as a 401(k), are not deductible.
Amount of Deduction
The amount that is able to be deducted is phased out as the taxpayer’s Adjusted Gross Income (AGI) goes from $60,000 to $75,000 if single, or from $120,000 to $150,000 if married and filing jointly. A married taxpayer filing separately cannot claim the deduction.
Alimony
Taxpayers making alimony payments to an ex-spouse you may be able to claim an “above-the-line” deduction on the 1040.
Rules
The taxpayer in question must enter the Social Security number of the “ex,” who, in response, must claim the alimony received as taxable income.
To be deductible, alimony payments must be in cash (or check) and included as condition in the divorce decree. The taxpayer must not live with the “ex,” and payments must end upon the death of the “ex.”
Alimony deductions are not limited to just support payments. They include payments made to all third parties on behalf of your former spouse that …
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