Friday, February 3, 2012

10 most commonly missed income tax deductions:

Here is a list of what I have found to be 10 of the most commonly missed personal income tax deductions.
  1. State sales taxes – A few years back the IRS opened the door to allow us to deduct our State sales taxes paid in place our State income tax. This has proven to be very beneficial for those who live in a state with no state income taxes. So don't throw away all those receipts... they could add up to big tax savings.   
  2. Charitable contributions –We all know our tithes are deductible and rarely miss that one, but what gets forgotten about are the out-of-pocket expenses and the mileage. You are allowed to deduct any ou-of-pocket expenses incurred while providing a service to any non-profit organization. This would also include mileage to and from events/activities, picking up and dropping off supplies and to fulfill any callings or jobs for the organization.
  3. State tax you paid last spring – Did you know that if you owed state income taxes after filing last years return the amount you paid is deductible? Any tax payments made to the state are deductible even if they were payments for a prior year. 
  4. Refinancing points – How many of us have ever paid points when purchasing or refinancing a home? Did you know that those points are considered interest? Points from a home purchase or refinance can be deducted equally each year for the entire life of the mortgage. In some cases the points could be fully deductible in the year paid.  
  5. Child care credit – This credit can be taken as long as both parents have earned income or are listed as full-time students. The $ amount used to calculate the credit is $3,000per child up to $6,000. This can be useful if your child care costs exceeded your tax-favored reimbursement account at work. For example, if child care costs you $6,000 for the year, and you receive a $3,000 benefit from work, you may use the additional $3,000 towards the credit on your taxes.
  6. Earned Income Tax Credit – This is a substantial credit for low-to-moderate income workers that is very frequently overlooked or miscalculated. You could receive up to $5,571 of free money with this credit. 
  7. Student loan interest paid by Mom and Dad – You are probably already aware that your student loan interest you pay is deductible, but did you know that interest paid by your parents toward your loan is deductble also? If you are not claimed as a dependant the IRS now considers any monies paid by your parents towards your student loans as a gift to you. Its as though they gave you a cash gift and you used it to make your student loan payments. 
  8. Moving expense to take job – If your taking your first job out of college or your company is relocating you at your expense and the move is more than 50 miles away this deduction is for you. If you fall in this category you are allowed to deduct any costs related to the move including but not limited to mileage, tolls, parking, hotel, etc...    
  9. Jury pay paid to employer – Some employers will continue to pay your full salary while you are fulfilling your civic duty, but ask that you hand over your jury fees to the company. The only issue is that the IRS requires you to report those fees as taxable income. If you give the money to your employer you have the right to deduct the amount so your not taxed on money that you didn't et  to keep.
  10. Reinvested Dividends - Some of you may have no idea what this is...there isn't really a deduction here, but can save you a lot of money. It's also happens to be something that many taxpreparers miss. If you have your mutual fund dividends automatically reinvested in additional shares, don't forget that each reinvestment is considered an increases to your “tax basis” in the fund. By keeping track of your reinvested dividends you will reduce the amount of taxable capital gain (or increases the tax-saving loss) when you sell your shares. By forgetting to keep track of this you are overpaying your taxes, which nobody wants to do
-- No matter how big or small the deduction or credit may be, if you forget to include it you are giving the government more of your hard earned money than you really need to. If you want to make sure your not overpaying your taxes, come see us at Innovative Tax Solutions, we'll do all we can to make sure you keep more of your money!