Most-overlooked tax deductions
Wednesday, March 23rd, 2011
Here is a list of some of the most-overlooked tax deductions each year. Overlooking these deductions may cost you money by raising your tax bill, and the IRS seldom complains when you overpay your taxes. Check this list, and then call us to see how you might claim these deductions.
- State sales taxes. If you itemize deductions, you have a choice of deducting state income tax or sales tax, whichever is greater. Unless you have quite a bit of investment income taxable in Tennessee, you’ll want to claim sales taxes. In addition to the amount the IRS calculates for you, you can add sales tax for a vehicle and construction materials you bought yourself.
- Reinvested dividends. If your mutual fund or stock dividends are used to buy additional shares, each reinvestment increases your basis in the investment. This can make a big difference when you sell it in a taxable account because it reduces the taxable gain or increases the tax-saving loss.
- Out-of-pocket charitable contributions. Keep those receipts if you buy supplies for your favorite charity. If you drive your vehicle for charity, keep a mileage log so you can deduct 14 cents per mile.
- Student-loan interest. A child who is not claimed as a dependent can qualify to deduct interest paid by the parents on his or her return. The IRS deems the payments to have been given to the student, and the student to have paid the interest.
- Job-hunting costs. If you are looking for a new job in the same line of work, you may deduct away-from-home travel costs, ground transportation, employment agency fees, costs of printing resumes and business cards, postage, and other expenses related to the job search. But if it is your first job or the new position is in an unrelated field, the hunt is not deductible. This is an itemized deduction.
- Moving expenses. If your new job is at least 50 miles from home, costs of moving yourself and your household are deductible, including mileage if you drive your vehicle. Unlike the job-hunting deduction, you can claim this one for your first job, and even if you do not itemize.
- Overnight travel for military reservists. If you travel more than 100 miles and stay overnight for drills or meetings, you may deduct travel costs even if you do not itemize.
- Health insurance deduction. If you are self-employed, your health insurance premiums reduce self-employment tax for 2010 only, in addition to income tax.
- Child-care credit. If you take a payroll deduction for dependent care, that part is not available for the credit. But if you pay more than your payroll deduction, the excess may generate a tax credit, which reduces your tax dollar-for-dollar.
- Estate tax on income in respect of a decedent. If you inherited an asset such as an IRA from an estate that paid federal estate tax, you can reduce the tax you owe by the amount of estate tax that was paid on that asset.
- Refinancing points. Points you pay when buying a house are deductible in the year you pay them. When you refinance a mortgage, though, you may only deduct a proportional amount based on the life of the loan. It’s not much each year, but it counts. The remaining amount can be deducted in the year you pay off the loan.
- Jury pay turned over to your employer. If your employer continues paying your salary while you serve jury duty, you may be asked to turn over your jury pay to the company. You still must report jury fees as taxable income, so by deducting the amount paid to your employer, the tax hit is a wash.
- American Opportunity Credit. This modified version of the Hope credit covers all four years of college, is partially refundable, and is phased out at higher income levels than the old credit. The Lifetime Learning credit is also still available.
- Making Work Pay credit. Although this credit reduced your withholding throughout 2010, you must claim it on your tax return.
- Credit for energy-saving home improvements. The cost of certain energy-saving items installed in 2009 and 2010 is subject to a 30% credit up to $1500 for both years combined. Another credit is available for devices that use alternative energy sources.
- Sale of demutualized stock. If you received stock from an insurance company that switched from being policyholder-owned to stockholder-owned, a recent court decision affects you. When you sell that stock, you may reduce the tax you pay on the gain by reporting your basis in the stock.
- Home-buyer credit. This credit was expanded to long-time homeowners before it ended. If you closed on, or entered a binding contract on, a home before April 30 2010, you may qualify.
Remember to talk with your tax adviser to learn how these deductions may apply to your unique situation. It often pays to have an experienced professional like us to prepare your tax return. If you offer full disclosure of events over the past year to your tax preparer, you may trigger questions that can lead to tax savings. As we prepare your return, we also watch out for items that may be more likely to trigger questions from the IRS, and we’ll discuss them with you. You’ll rest better knowing that your tax return was prepared by an experienced team of experts.