1. Sales Tax (State)
If you live in a state that does not withhold taxes from your income, then your sales tax rates are higher than other states. In this case, deducting sales tax would especially benefit you. Even if you are in a state (the majority) that does withhold income tax, you may still claim sales tax deductions.
Here’s the Catch:
- deducting state and local income taxes
- deducting state and local sales taxes
For most people, deducting state and local income taxes will come out to be the better of the two. There are tables available on the IRS website which show accurate depictions of what you can claim and deduct.
Whether you’ve purchased a new car, a boat, home or home building materials, much of this can be deducted and it is commonly overlooked. Here is a link to the calculator on the IRS website to help you figure out your deduction amounts. https://apps.irs.gov/app/stdc/
Okay, so this one is not exactly a “tax deduction”, but it is something that will help in saving you lots of cash. A lot of investors choose to automatically have their dividends reinvested into more shares. Each time you reinvest, your tax basis increases.
When your tax basis increases, the amount of capital gain declines for when you decide to sell your shares. Not including dividends in your cost basis equates to paying more taxes. It is a strategy many investors use (think Trump etc.).
3. Charitable Contributions
Not only the normal (large, noticeable with the money definitely missed) charitable contributions we think of when the subject is brought up, but also out-of-pocket contributions. Little things add up over time (compound effect). You can write off small things too, such as baking ingredients you purchase to bake goods for a church fundraiser, or paper products purchased for use for a non-profit organization’s event.
Don’t forget your mileage logs! Mileage can be deducted for charitable causes as well. While your standard deduction is currently 54cents , the deduction for charitable mileage is 14 cents per mile driven.
P.S. Similarly related — if your business gifts clients or customers, it is worth noting that up to $25 per person is 100% deductible.
4. Student Loan Interest
You probably remembered to claim student loan interest if you’re like the most of us, with student debts that you wish would just disappear. However, did you know that student loan interest paid by your parents may also be deducted?
It used to be the case, that if parents paid back the loan that was incurred by their kids, then no one received a tax break. According to tax law the student had to be “liable and responsible” for paying back the debt on their own. There is nearly always an exception.
If you parents are paying some or all of your student loans, and you are not claimed by them as a dependent, this money as treated as a “gift”. In other words, you are gifted the money by your parents by which you use to pay your loan. You may qualify to deduct up to $2,500 of student loan interest paid by your parents.
5. Moving Expenses
There are several factors that play a role in whether you qualify for this deduction. All moving expenses do not qualify and deductions do not apply to every one. Let’s say you have just freshly graduated college and are looking for your first real job. Expenses related to searching and finding the job are not deductible. But, moving expenses to get to this first job are. If your new job is located 50 miles or further away, then you may also deduct 23cents per mile driven towards the cost of moving yourself and belongings to this new location. Tolls, parking meters and parking fees can also be included.
6. Dependent Care Tax Credits
It is a very common ‘deduction’ that many qualify for, especially parents or legal guardians who are nearly always eligible to take advantage of the deduction for child dependents. The difference between a deduction and a credit is that, a credit reduces your tax bill by 100% of the credit amount, whereas a deduction just reduces the income amount subject to tax. Therefore, it hurts a lot more to miss out on an available credit than it does to leave off a deduction.
One of the most common reasons a person misses out on the dependent care tax credit is if they pay child care bills through their employer or a special reimbursement account at their place of work. The eligible amounts have increased in recent years by up to $6000. Currently, if you run the maximum $5000 limit of dependent care expenses through your employer plan, but spend additional amounts on child-care, you may claim up to an additional $1000.
7. Earned Income Tax Credit
It is estimated that roughly 20-30% of low-income people and families eligible for this credit miss out each year by simply failing to claim it. (Another reason why hiring someone to do your tax return is a good idea) Others are not aware of the credit or that they qualify for it.
Again, this is not a deduction, but a credit, so it counts dollar-for-dollar on your tax bill. Currently, the amounts range from just more than $500 to over $6000 (Imagine adding that to your refund). The purpose of the credit is to help low and moderate income workers as a supplement to their wages.
Here is where the trillions of unclaimed tax dollars accumulate rapidly – this tax credit does not “only” apply to low and moderate income persons. Literally millions of workers are eligible for this tax credit and are now considered “low income” due to circumstances in the economy and job market. You may qualify if:
- you lost your job
- your pay was cut
- your hours were cut
The exact deduction still depends on your W-4 (GFAM), or, marital status, income and number of members in your household. In order to get the credit you MUST file a tax return. What if you are seeing this now and realize that you haven’t claimed it but already filed your return? You can still file any time during the year to claim the credit for up to 3 previous tax years.
*Even if you don’t owe any taxes or make enough that you are required to file a return, you should go ahead and file to receive any refund or credit amounts that may be available in the given tax year.
8. Last Year’s Taxes
Maybe you didn’t receive a refund after all. If you owed and paid taxes on last year’s return, be sure to include that amount in your current year return with your state itemized deduction. Also include state taxes withheld from your pay checks throughout the year or estimates from your employer.
9. Mortgage Refinancing/Points
Points! It is kind of like when using your rewards points at Starbucks for a free caramel mocha latte or at you favorite clothing retailer to receive discounts on your purchase. Whenever you refinance your home, points can be deducted over the term of your mortgage. That is, if your home is financed for 20 years, you can deduct 1/20th of your points each year over the course of the loan. It may not seem like much, but it can add to be A LOT when factoring in the interest and the term of your loan.
10. Jury Duty
Pretty well all of us are called to Jury Duty at some point or another. Some employers continue to pay you your full salary while you are involved in serving for jury duty. What happens sometimes is that your employer may ask that you turn your jury fees over to them. If you do give this money to your employer you are still entitled to deduct this so that you are not taxed. The reason being the money is more or less only being transferred by you.