Every year around tax time, our wealth advisors hear similar stories: Someone's golf buddy or sister-in-law reduced their tax burden by utilizing a little-known tax deduction.
These commonly overlooked deductions are worth looking into, as they have the potential to leave more money in your pocket. As tax time draws near, don't overlook these deductions -- they may help you to minimize your tax bill.
Financial Strategies: Commonly Overlooked Tax Deductions
State Sales Tax/Income Tax Deduction. Did you know that you may be able to deduct either the state income taxes or state sales taxes that you paid this year? Simply choose the option that awards you the largest write-off. The IRS even makes it easier to figure out with an online sales tax deduction calculator tool.
Charitable Donations. If you incur out-of-pocket expenses such as purchasing food items for a soup kitchen or buying dog toys to donate to an animal shelter, you may be able to deduct those expenses. Just be sure to keep all your receipts and, if the total amount goes over $250, get an acknowledgement from the charity, too. Plus, if you used your own vehicle for a charity, you can deduct $.14 per mile plus parking fees.
Your Child's Student Loan Interest. If you're paying student loans for your non-dependent (i.e. adult) child, they can deduct up to $2,500 per year in student loan interest. Note that only the child can claim this deduction, not the parents -- because the child is the one liable for the debt.
Employment-Related Expenses. If you were a job seeker this year, you may be able to deduct job search expenses, as long as you were job hunting in the same field as your most recent job. Potential deductions may include:
- Up to $.56 per mile driven as part of the job search
- Costs of printing (resume and cover letter), postage, and business cards
- Fees paid to employment agencies
- Food and lodging costs if your search took you away from home overnight
Strategic Financial Planning Includes Tax Planning
Reinvested Dividends. When you automatically reinvest mutual fund dividends by using them to buy more shares, don't forget to add these reinvested dividends to your basis. If you don't, you'll get taxed on them twice: when they're paid and immediately reinvested, and later when they're sold. Ask your wealth advisor for help with this issue to avoid double taxation.
Self-employed Medicare Premiums. If you're self-employed and qualify for Medicare, you can deduct premiums for Part B, Part D, Medigap policies, and the costs of a Medicare advantage plan. If you were eligible for coverage through an employer or a spouse's employer, you can't take this deduction.
Last Year's State Tax. If you owed (and paid) state taxes from your previous return, don't forget to deduct that amount from this year's state-tax deduction on your federal income tax return.
Work with your wealth advisor and your tax professional to incorporate these deductions into your comprehensive financial plan.