The 10 Most Overlooked Tax Deductions

From: turbotax.intuit.com

Don’t overpay taxes by overlooking these tax deductions. See the 10 most common deductions taxpayers miss on their tax returns so you can keep more money in your pocket.

Get your share of more than $1 trillion in tax deductions
The most recent numbers show that more than 45 million of us itemized deductions on our 1040s—claiming $1.2 trillion dollars’ worth of tax deductions. That’s right: $1,200,000,000,000! That same year, taxpayers who claimed the standard deduction accounted for $747 billion. Some of those who took the easy way out probably shortchanged themselves. (If you turned age 65 in 2018, remember that you deserve a bigger standard deduction than younger folks.)

Here are our 10 most overlooked tax deductions. Claim them if you deserve them, and keep more money in your pocket.

1. State sales taxes
This write-off makes sense primarily for those who live in states that do not impose an income tax. We’re lookin’ at you, Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, and Wyoming. Here’s why this is a factor. You must choose between deducting state and local income taxes or state and local sales taxes. For most citizens of income-taxing-states, the state and local income tax deduction is usually the better deal.

For those of you in an income-tax free state, there are two ways to claim the sales tax deduction on your tax return. One, you can use the IRS tables provided for your state to determine what you can deduct. In addition, if you purchased a vehicle, boat, airplane, home or did major home renovations, you may be able to add the state sales tax you paid on these items to the amount shown in the IRS tables up to the limit for your state. Or two, you can you can keep track of all of the sales tax you paid throughout the year and use that.

The best way to see what you can deduct is to use the IRS’s Sales Tax Calculator for this. Keep in mind, the total of your itemized deductions for all of your state and local taxes is limited to $10,000 per year.

2. Reinvested dividends
This isn’t really a tax deduction, but it is a subtraction that can save you a lot of money. And it’s one that many taxpayers miss. If, like most investors, you have mutual fund dividends automatically invested in extra shares, remember that each reinvestment increases your “tax basis” in the stock or mutual fund. That, in turn, reduces the amount of taxable capital gain (or increases the tax-saving loss) when you sell your shares.

Forgetting to include the reinvested dividends in your cost basis—which you subtract from the proceeds of sale to determine your gain—means overpaying your taxes. TurboTax Premier and Home & Business tax preparation solutions include a very cool tool—Cost Basis Lookup—that will figure your basis for you and make sure you get credit for every dime of reinvested dividends.

3. Out-of-pocket charitable contributions
It’s hard to overlook the big charitable gifts you made during the year by check or payroll deduction. But the little things add up, too, and you can write off out-of-pocket costs you incur while doing good deeds. Ingredients for casseroles you regularly prepare for a qualified nonprofit organization’s soup kitchen, for example, or the cost of stamps you buy for your school’s fundraiser count as a charitable contribution. If you drove your car for charity in 2019, remember to deduct 14 cents per mile.

4. Student loan interest paid by you or someone else
In the past, if parents or someone else paid back a student loan incurred by a student, no one got a tax break. To get a deduction, the law said that you had to be both liable for the debt and actually pay it yourself. But now there’s an exception. You may know that you might be eligible to take a deduction but even if someone else pays back the loan, the IRS treats it as though they gave you the money, and you then paid the debt. So, a student who’s not claimed as a dependent can qualify to deduct up to $2,500 of student loan interest paid by you or by someone else.

5. Moving expenses to take your first job
Here’s an interesting dichotomy: Job-hunting expenses incurred while looking for your first job are not deductible, but moving expenses to get to that first job are. And you get this write-off even if you don’t itemize. If you moved more than 50 miles, you can deduct 23 cents per mile of the cost of getting yourself and your household goods to the new area, (plus parking fees and tolls) for driving your own vehicle. However, beginning in 2018, moving expenses are no longer deductible for federal taxes unless you are in the military and the move is due to military orders. Some states such as California continue to provide this tax benefit.

But there IS an exception to this new federal law. There’s one main group of people who can still claim their moving expenses to the IRS. Who are they? Military personnel. If you’re an active duty military member who is relocating, you can still deduct these expenses —if you don’t receive reimbursement from the government for the move.

Also, as long as the move is permanent —and your relocation was ordered by the military — you don’t have to pay tax on qualified moving expense reimbursements. So start getting those receipts out now – because you can claim travel and lodging expenses for you and your family, moving household goods, and the costs for shipping your cars and your beloved pets! And that’s good news for the men and women we thank for bravely serving our country.

In honor of our nation’s military personnel, all enlisted active duty and reserve military can file free federal and state taxes with TurboTax Online using the TurboTax Military Discount. The #1 best-selling tax software, TurboTax easily handles military tax situations including:

  • Military and civilian income—including combat pay, BAS and BAH
  • Military-related expenses—TurboTax will find every deduction you deserve
  • Completed a PCS—TurboTax will determine your state of residence

Simply start your TurboTax Online return and use your military W-2 to verify rank, and your savings will be applied when you file. Get started today for free.

6. Child and Dependent Care Tax Credit

A tax credit is so much better than a tax deduction—it reduces your tax bill dollar for dollar. So missing one is even more painful than missing a deduction that simply reduces the amount of income that’s subject to tax.

But it’s easy to overlook the child and dependent care credit if you pay your child care bills through a reimbursement account at work. The law allows you to run up to $5,000 of such expenses through a tax-favored reimbursement account at work.

Up to $6,000 in care expenses can qualify for the credit, but the $5,000 from a tax favored account can’t be used. So if you run the maximum $5,000 through a plan at work but spend more for work-related child care, you can claim the credit on up to an extra $1,000. That would cut your tax bill by at least $200 using the minimum 20 percent of the expenses. The credit percentage goes up for lower income households.

7. Earned Income Tax Credit (EITC)
Millions of lower-income people take this credit every year. However, 25% of taxpayers who are eligible for the Earned Income Tax Credit fail to claim it, according to the IRS. Some people miss out on the credit because the rules can be complicated. Others simply aren’t aware that they qualify.

The EITC is a refundable tax credit—not a deduction— with maximum amounts for different filing statuses ranging from $529 to $6,557 for 2019. The credit is designed to supplement wages for low-to-moderate income workers. But the credit doesn’t just apply to lower income people. Tens of millions of individuals and families previously classified as “middle class”—including many white-collar workers—are now considered “low income” because they:

  • lost a job
  • took a pay cut
  • or worked fewer hours during the year

The exact refund you receive depends on your income, marital status and family size. To get a refund from the EITC you must file a tax return, even if you don’t owe any taxes. Moreover, if you were eligible to claim the credit in the past but didn’t, you can file any time during the year to claim an EITC refund for up to three previous tax years.

For the full article: