Every year, millions of Americans leave money on the table by overlooking tax deductions. Taxpayers who claim the standard tax deductions may be shortchanging themselves. These are the tax deductions that are often overlooked.
State Sales Tax
State sales tax deductions are a sensible write off for those who are not imposed an income tax by their home state. Taxpayers must decide between deducting local and state income taxes or local and state sales taxes. For individuals who live in income tax states, the income tax deduction may be a better option. The IRS provides tables for residents of states with sales taxes which can help determine how much of a deduction they can take. However, if you made a major purchase like a vehicle or boat, you can add the amount in sales taxes you paid to the IRS table. The same is true if you remodeled your home. You may be able to write off the materials you purchased. As of 2018, the itemized deduction for local and state taxes is capped at $10,000 per year.
Out of Pocket Charitable Contributions
Any charitable contributions made during the year can be deducted. The contributions must have been made by check or payroll deduction. You may also be able to write off any expenses incurred while performing a societal good. The ingredients for the cakes you baked for the local nonprofit or the stamps you purchased and donated for a school fundraiser both count as charitable contributions. One commonly overlooked expense related to charitable contributions is gas mileage. For the 2018 tax year, the deduction was 14 cents per mile.
Although reinvested dividends are not technically tax deductions, if subtracted they can add up to pretty big savings. If you have a mutual fund and the dividends are automatically invested, each investment raises your tax basis in that fund. As a result, the amount of taxable capital gains is reduced. Not including the reinvested dividends in your cost basis will result in you overpaying your taxes.
Student Loan Interest Paid by Parents
Many years ago, the interest paid on student loans by parents was not an allowable deduction. Thankfully, the laws have changed. If your mom and dad made payments on a student loan throughout the year, you may qualify for a deduction of up to $2,500 of the student loan interest paid by them.
Military Related Moving Expenses
If you are in the military, any expenses incurred while looking for a job are not deductible, but any expenses related to moving to get the job are. Moving expenses can be written off even if the return is not itemized. For example, if you moved more than 50 miles, you can claim a deduction of 23 cents for each mile driven to get yourself and your belongings to the new area. You may also deduct any tolls and parking fees associated with the move.
Dependent and Child Care Tax Credit
A tax credit can be more appealing than a tax deduction because it reduces your tax liability dollar for dollar. An often-overlooked credit, the dependent and childcare tax credit can be taken if childcare expenses are paid by you and reimbursed through a reimbursement account from your employer. The law will allow you to claim up to $5,000 for expenses reimbursed for child and dependent care.
Earned Income Tax Credit
Millions of people who fall under the category “low income” take advantage of this credit every year. It is estimated that 25% of taxpayers who meet the eligibility requirement for the Earned Income Tax Credit do not claim it. Some people do not claim the credit because the rules are complicated and some are not aware that they are eligible. The Earned Income Tax Credit is a refundable tax credit and not a deduction. The credit can range from $510 to $6,421. It was designed as a supplement to wages for moderate and low-income workers. The amount of the credit will be dependent on family size, income, and marital status.
State Taxes Paid Last Year
If you owed taxes from a previous year’s return you may be able to include that amount when you itemize your state deduction on this year’s return. You will also want to include any state taxes that were deducted from your paycheck or paid as quarterly estimated payments.
When a home is purchased, there is the option to deduct “points” paid to obtain the mortgage. When the home is refinanced, points must be deducted over the life of the loan. This means that if you have a 30-year mortgage, you can deduct 1/30th of the points each year. That works out to be $66 per year for every $2,000 of points paid. Additionally, if the loan is paid off through a sale or refinancing with another lender, you will get to deduct all the points.
Some employers pay an employee’s full salary or hourly wage while they serve on a jury. They may ask that the employee turn over the fees to the company when they are paid by the court. The only issue is that the IRS requires that you report the jury fees paid as taxable income. If you surrender the jury fees to your employer, you can deduct the amount, so you are not taxed for the money you did not keep.
Completing your taxes can be a complicated and maybe even frustrating task. Unless you obtain professional tax help you may miss deductions you qualify for. This is why professional tax assistance exists. We are here to help ensure that you get the deductions you deserve and to educate you on tax-related items you did not know about. Our goal is to get you the biggest refund possible while maximizing your deductions.