Millions of taxpayers probably overpay their taxes every year because they missed out on money-saving tax breaks that they qualified for but just didn't know about.
Considering all the deductions and credits that are out there, it seems very likely that most taxpayers are leaving money on the table. Sure, the standard deduction is easy, but it might you are paying more in taxes than if you had taken the time to itemize your deductions.
According to Kiplinger’s Personal Finance, millions of taxpayers probably overpay their taxes every year because they missed out on deductions or credits that they qualified for and either overlooked or didn’t know about.
The biggest offenders are listed below.
State sales taxes
Congress allows you to choose between deducting the larger deduction of either state income taxes paid or state sales taxes paid. For taxpayers living in states with no state income tax, the decision is easy. According to Kiplinger’s, you can include the sales tax paid on big-ticket items like a vehicle.
According to Kiplinger’s, a lot of taxpayers miss this subtraction. If your dividends are automatically used to buy more shares, but you forget to include those dividends in your basis, then they will be taxed twice. Ouch.
Out-of-pocket charitable contributions
You can deduct the ingredients if you cooked for a nonprofit organization or if you drove for charity. If the costs exceed $250, then you will need the charity to document the support you provided.
Student loan interest
If you were legally required to repay the debt, then you can deduct up to $2,500 of the student-loan interest paid.
If you were unemployed and looking for a job in the same line of work then you can deduct such costs as transportation expenses, food and lodging, cab fares, employment agency fees and printing resumes, business cards and advertising. However, you can only deduct if those expenses exceed 2% of your adjusted gross income.
Costs of moving for your first job
The previous deduction is only for unemployed who are in between jobs; as such, those looking for their first job do not qualify. However, this deduction allows you to deduct the costs of moving if your first job is at least 50 miles away from your old home.
Military reservists’ travel expenses
Travel expenses to drills and meetings that are more than 100 miles from home and last overnight may be deducted.
Deduction of Medicare premiums for self-employed
If you run your own business then you can deduct the premiums you pay for Medicare Part B and Medicare Part Das well as the cost of supplemental Medicare policies. However, you cannot claim this deduction if you have a job — in addition to your business — where you can be covered or if your spouse can cover you under his or her coverage.
While you work, between 20% and 25% of what you pay for child care can be covered by a tax credit. According to Kiplinger’s:
“But if your boss offers a child care reimbursement account — which allows you to pay for the child care with pre-tax dollars — that might be an even better deal. If you qualify for a 20% credit but are in the 25% tax bracket, for example, the reimbursement plan is the way to go.”
Estate tax on income in respect of a decedent
If you inherit an IRA from someone whose estate was subject to the federal estate tax, then you get an income-tax deduction for the amount of the estate tax paid on what you received.
The Most-Overlooked Tax Deductions — Kiplinger’s