How to Claim Deductions up to 3 Years Later

The IRS imposes a three-year statute of limitations on tax refund claims. While taxpayers have three years to recoup unclaimed refunds, the statute of limitations on collecting owed taxes is considerably longer.

Seven Often-Overlooked Tax Deductions and Credits

Overlooked Deductions

According to the IRS, more than 45 million Americans itemized $1.2 trillion in deductions in 2016. However, as the ever-evolving tax code is updated and tweaked, the agency acknowledges that many people routinely overlook tax breaks they are eligible for. Seniors, job-seekers, volunteers, homeowners, students and working parents—in other words, virtually everyone—commonly overlook deductions every year. Awareness and, in some cases, record-keeping, are the only requisites necessary to capitalize on most tax-trimming opportunities. Here are seven frequently missed deductions:

1.) State sales taxes: The IRS offers the option of deducting state income taxes or state sales taxes. Taxpayers can choose one, not both. For those living in the seven states without a state income tax, this can provide significant savings. Regardless of where a filer lives, this deduction can also be beneficial to those who made a big-ticket purchase, such as a vehicle. The IRS provides state-specific tables and a calculator for itemizing sales tax deductions on Form 1040's Schedule A.

2.) Out-of-pocket donations: Many people donate to charities through payroll deduction. This provides certification for itemizing. However, taxpayers can claim up to $250 annually in out-of-pocket contributions incurred while volunteering or contributing to philanthropic campaigns. Expenses such as mileage on a car, paying for a meal at a fundraiser and foods bestowed to a soup kitchen, can be written off if documented by receipts. Once donations exceed $250, the IRS requires certification from charities to document deductions.

3.) Job-related relocation: Job-hunting expenditures cannot be written off, but the cost of moving more than 50 miles to a "first" job is deductible, even without itemizing. This includes expenses related to moving household goods and mileage. IRS Publication 521 spells out exactly what can be written off.

4.) Jury duty: Many employers pay employees' salary if called to jury duty, but require that the worker turn over the stipend they receive from the court, while on the jury. The IRS requires individuals to report jury duty stipends as taxable income, but also allows it to be deducted on Form 1040's Line 36.

5.) Childcare: Working families can claim up to 35 percent of childcare costs. For those working for employers that offer a childcare reimbursement account, in which the employer covers childcare costs with "pretax" dollars, there are an array of options based on income and number of dependents. IRS Publication 503 spells out the details.

6.) Lifetime learning credit: Taxpayers can claim deductions that offset some expenses incurred while supporting a college student. However, many don't realize they can claim a "lifetime learning credit" to subsidize the cost of higher education for themselves or their spouses if income does not exceed $65,000 on an individual return or $130,000 for couples filing jointly.

7.) Hobby expenses: Taxpayers who generate income from a hobby, such as selling homemade arts and crafts, can deduct some "ordinary expenses." Hobbyists cannot claim the same deductions as for-profit businesses—for instance, they cannot claim losses—but they can deduct expenses equal to the income the hobby generates. IRS Publication 535 outlines these deductions.

Reclaiming a deduction

For the most part, expenses must be deducted in the year in which they incur on that year's tax return. There are a few exceptions to this rule, however usually, to claim a missed deduction requires filing an amended tax return within three years of the year's deadline.

Here are a few notes regarding filing an amended return:

  • Ensure the deduction is sizable enough to warrant amending. Rather than request a refund, an option is to have the IRS apply the amount to estimated tax liabilities for the current year.
  • Among exceptions to the three-year time limit is seven years to file an amended return to remedy a tax debt, or to claim or change a foreign tax credit. Deductions for foreign taxes can be claimed up to 10 years later.
  • An amended return cannot contain "cherry-picked" information that increases deductions but does not include changes that could increase tax liability. The entire return must be amended.
  • There are parts of the original return that cannot be changed on an amended return, such as switching status from married filing joint to married filing separate. Conversely, an original return filed under married filing separate status can be changed to joint, or from qualifying widow(er) to head of household status.
  • The IRS doesn't allow e-filed amended returns. It must be printed and mailed to the IRS. Each amended return must be mailed in a separate envelope.

Once an amended return is filed, it can take up to three months to get a response from the IRS. If all is well, the amended return will manifest in a refund check, because direct deposit is not an option with 1040X paper filings. Visit this page to start an amended return.

Q&A: What kind of expenses are tax deductible?

There are a number of common expenses that may qualify as tax deductions to large numbers of taxpayers. Some of the most popular include home mortgage interest, real estate and property taxes, student loan interest and charitable contributions. Investment expenses can also be deducted in most cases, such as your broker fees. If you have significant medical or dental expenses for the year, you could also deduct those if they amount to at least 7.5% of your adjusted gross income.

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