Tax Deductions Not to Overlook!
Believe it or not, as taxpayers, we may overlook some seemingly obvious deductions that could save us more of our hard-earned money. Here are some of those items to keep in mind when tax time is looming. Remember, if you're ever unsure about a specific deduction, ask a trusted tax preparer, or visit www.irs.gov for more information.
Vehicle excise tax. If you get a bill from your state or local government charging you a tax for owning a vehicle, you may be able to deduct that tax. You can also get the tax deduction if you lease a vehicle and your finance company bills you for the tax.
Job-hunting expenses. It pays to save your receipts for job-hunting expenses. These expenses are deductible if they were incurred to locate a new job in the same line of work.
Real estate taxes. Also, don't forget taxes you paid indirectly, such as taxes paid through a mortgage escrow account. If you bought a house, check your settlement statement for any taxes which you reimbursed the seller at the closing, too.
Cost of tax preparation. Tax software expenses, preparation fees, and other tax-filing expenses are all deductible on your tax return as a miscellaneous itemized expense. Be careful to deduct them on the return for the year in which you paid the costs.
Estate tax. If the estate of the person who died was large enough to trigger estate tax, find out the amount of estate tax attributable to the IRA distribution. This amount is tax-deductible.
Capital loss carryover. If your capital losses are greater than your capital gains, you won't have to pay tax on the capital gains. If you have a capital loss one year and a capital gain the next year, use your capital loss carryover to reduce your taxes in the later year.
State tax you paid in April with your return. If you owed taxes when you filed your last state tax return, that check you wrote could help you when it's time to pay your next year's taxes.
Reinvested dividends. Often a mutual fund account is set up to automatically reinvest dividends in additional share purchases.
Credit for excess Social Security tax. If you worked for more than one employer during the year, look into the credit for excess Social Security tax.
Non-cash contributions. If you've donated clothes, furniture, or other items to a charity, the value of your donated items is deductible. Always get a written receipt. With non-cash charitable contributions, no receipt means no deduction if you're audited.
New points on refinancing. Any points you pay to refinance your home can be deducted on a monthly basis over the life of the new loan.
Old points on refinancing. Lots of people miss this one. All unamortized points on an old refinancing are deducted in the year of a new refinancing.
Health insurance premiums. Any health insurance premiums you pay are potentially deductible. You have to add these to your total medical expenses, however, and they have to exceed a certain percent of your adjusted gross income (AGI) before they give you any tax benefit. If you're self-employed and not covered by any other employer-paid plan, you can deduct 100% of your health insurance premiums.
Investment and tax expenses. Many of us forget tax planning and investment expenses because they are part of miscellaneous itemized expenses. Expenses to track include your employee business expenses, tax preparation fees and even the portion of your legal or accounting fees relating to tax planning.
Casualty deductions. If the area where you live has been declared a disaster area as the result of a hurricane, flood, wildfire, tornado, etc., you may claim your loss on your next tax return.
Retirement tax credit. This deduction/credit is designed to give moderate and low-income taxpayers an incentive to save for retirement.
Should I Itemize My Deductions?
Itemized deductions are certain expenses that you can use to lower your taxes. You should itemize deductions if your allowable itemized deductions are more than your standard deduction. Some taxpayers must itemize deductions because they do not qualify for the standard deduction.
The categories of itemized deductions are:
You may be subject to a limit on some of your itemized deductions based on your adjusted gross income. This limit applies to all itemized deductions except medical and dental expenses, casualty and theft losses, gambling losses, and investment interest.