Many taxpayers overpay their taxes every year just because they neglect one of the following money-savers. To remind all those people and update their tax deduction knowledge, we have come up with the top 10 most overlooked tax deduction items. So, don’t let your lack of tax deduction information prevent you from exercising these money-saving rights.
State sales tax regularly expires, but it also revives just as soon. State sales taxes are important for people who live in states that do not impose state income taxes. Itemizers can choose between state sales tax deductions or state income tax deductions. They can choose the option that offers the largest deduction to them. So, if your state does not impose an income tax, you can write-off the sales tax. You can take help from the IRS website that incorporates an online calculator, which tells the residents of different states how much they can deduct, depending on their state, local, and income sales tax rates.
Reinvested dividends are not actually counted as tax deductions, but they can be one of the important subtractions that save your money. And, if you miss this break, you can pay a lot of overpaid taxes. Like most of the investors, if you also own mutual fund dividends that are automatically used to purchase additional shares; then keep in mind that every reinvestment raises your tax fund basis. Additionally, this will increase your tax-saving loss or reduce your taxable capital gain, when you redeem shares.
Where big charitable gifts are usually noticed through payroll or check deductions, small ones are often ignored. These small charitable gifts generally add up and form big expenses. You should remember to cancel out-of-pocket costs that are incurred while you do a charity work. Always keep receipts of your charitable costs. And, if your contribution is over $250, remember to take an acknowledgement from the charity that documents the support you provided.
Usually, you can subtract interest only when you are lawfully required to pay off the debt. However, if parents repay student loans of their child, the IRS considers the transactions as money given to the child, who in turn paid the debt. Thus, till the child is not a reliant, he or she can subtract a maximum of $2,500 of the annual student-loan interest paid by the father or mother. And this money-saver does not require itemization.
If you are looking for a job position that is same as your existing job profile or your most recent job profile, then you can subtract job-hunting expenses as miscellaneous costs, only if you itemize. And, qualifying expenses can be cancelled even if you do not get a new job. However, job-hunting expenses incurred while seeking your first job are not eligible.
Although, job-hunting costs do not qualify when you are seeking your first job, yet moving expenses to land that job are counted. And, you get this tax deduction, even if you do not itemize. To be eligible for this write-off, your old house should atleast be at a distance of 50 miles from your initial job. And, if you are eligible, you can deduct the expenses incurred from moving yourself and your household items to the new place.
Military reserve or National Guard members can deduct expenses that they incur from travelling to meetings or drills. To be eligible, you should travel over 100 miles from your house and stay away from your house overnight. And, if you are eligible, you can deduct half the price of your meals and the cost of accommodation, in addition to the payment for driving your own vehicle to reach and return from drills.
All people who have their own business and are qualified for Medicare can subtract the premiums that they pay for Medicare Part D and Medicare Part B, along with costs incurred from a Medicare Advantage plan or costs incurred from supplemental Medicare (medigap) schemes. This tax write-off can be obtained irrespective of your itemization. Moreover, it is not dependent on the 7.5% of AGI test, which is applicable for itemized medical costs.
A credit is much better than a tax write-off, as it exponentially reduces your tax bill for every dollar. So, it is important to not miss a credit, since it diminishes your total income that is subject to tax. When you work, you can be eligible for a tax credit between 20% and 35% of the total amount of child care that you pay.
Estate tax on income refers to the income-tax deduction that you get, when you pay estate tax for your IRA assets. It can seem a bit complicated at first, but it is a huge money-saver, especially if you got an IRA from a person whose estate was much bigger that it was exempted from the federal estate tax.
Cheryl Panattoni Forensic Accounting and Tax Inc