In professional sports it’s becoming more and more common for athletes to broker trades to teams that are located in tax advantaged states. For example Tony Romo’s contract with the Dallas Cowboys makes him the fifth highest paid athlete in the NFL. He has the distinction of being the NFL athlete that takes home the most money. Drew Brees will earn nearly 2 million dollars more than Romo but will effectively take home $70,000 less. This is due to the fact that Texas doesn’t have any income tax, while Louisiana does.
This might seem like an extreme example, and in all fairness it probably is. But, it does illustrate the point that there are ways to save a few tax dollars. Usually, any potential tax savings are small enough that it doesn’t justify moving your family to another state. But savings are savings, and every dollar counts. So with that in mind, here are a few of the most overlooked tax deductions from the past few years. It is worth noting that I am a tax professional and before you take any of the recommendations in this letter, we should sit down together to have your situation assessed, to help you uncover hidden risks – and opportunities.
- Job hunting costs: If you are one of the millions of Americans who found yourself unemployed in the past year, you can deduct the money you spent in search for new employment.
- Moving for your first job: If you are looking for your first job and the job is over 50 miles away from your current residence, you can deduct the cost of moving for your employment. As with most deductions you need to prove that you qualify. This requires specific receipts and records, so have all your paperwork!
- Child care credit: Credits are slightly different than a deduction, but the bottom line is you pay fewer taxes if you qualify. The Child Care Credit allows you pay for up to $5,000 ($6,000 for the care of two or more children) of child care without being taxed on those dollars.
- Sales tax vs income tax: The federal government allows you to deduct either the amount of money you paid in income tax or the amount you paid in Sales tax, whichever is larger. If you, like Tony Romo, live in a state without income tax, it becomes easy to decide which deduction you’ll take. If you live in a state with income tax, you and I will need to sit down and decide which deduction you’ll want to take.
As the saying goes, two things are inevitable; death and taxes. Since you can’t avoid them, you might as well make sure that you’re keeping as much of your money as possible.