For 2009 (the latest year available for IRS statistics), Americans claimed $1.2 trillion in itemized deductions. In that same year, taxpayers also claimed $747 billion by electing the standard deduction. At Henssler Financial, we have seen time and again, deductions that get overlooked. According to the IRS, the most common deductions—property taxes, mortgage and student loan interest, and charitable contributions—account for 97% of all deductions claimed. But what about the deductions that people frequently overlook, and therefore, leave tax dollars “on the table?”
We have compiled of few of these commonly overlooked deductions:
State Sales Taxes
This deduction usually makes sense for those in states with no income tax. Essentially, you choose between the greater of state and local income taxes, or state and local sales taxes. You can keep track of all your sales taxes paid during the year, or use the IRS tables for you state. Remember to add to the table amount the sales tax on major purchases, such as, automobiles, boats, building materials, etc.
Last Year’s State Income Taxes
If you owed additional state (or local) income taxes on last year’s return and paid them last spring when you filed, don’t forget they become deductible in the year paid. So that would be this year along with any current year’s state (or local) income taxes paid.
Reinvested Dividends
Reinvested dividends are not really deductions but it’s a subtraction that can save you tax dollars. Very often the dividends are reinvested into the mutual funds or the stock investors hold. We often find that they are not tracked, or later forgotten and not counted, with the original cost when the funds or stocks are later sold. This will result in overpaying taxes on a higher gain.
Refinancing Point
As most know, if you refinance your home mortgage, any points paid are amortized over the length of the new mortgage. But if you refinanced several years back, do not forget to write off the unamortized remaining points when that old mortgage is refinanced again. This is also true if you sell your home this year and have unamortized points. They now become fully deductible in the year of sale. Finally, if you are purchasing a new home, all points including seller-paid points, which are often overlooked, are deductible in the year of purchase.
Volunteer Expenses for Charities
If you volunteer for a charity, be sure to take the deduction for the miles you drive for that charity. For 2011 and 2012 the charity mileage rate is 14 cents per mile. They do add up. Additionally, if you incur expenses on behalf of that charity, they too are deductible. But be aware, with some recent court cases, you might want to consider getting an acknowledgement letter from the charity if the amount exceeds $250. Be sure to keep the receipts.
Student Loan Interest Paid by Parents
Normally, the deduction for interest on student loans is deductible by the parents if they are legally required to pay off the debt. However, many parents get no benefit from this because of income restrictions for the deductibility of student loan interest. If the child is no longer claimed as a dependent on the parent’s return, i.e., after graduation, the student qualifies for a deduction of up to $2,500 of the student loan interest paid by the parents. The IRS treats this as a gift of money used by the child to pay the interest.
Moving Expenses
If your new job is more than 50 miles from your old home, you qualify for the moving expense deduction. There are specific rules as to what is allowed (see the Moving Expense Form 3903), but be sure not to overlook this deduction if you qualify.
Job Hunting Expenses
In these tough economic times with so many people looking for jobs, your job hunting expenses can be deductible. First, you must be looking for a job in the same line of work you were previously employed. Travel, including airfare and mileage; resume expenses; postage; employment agency fees; meals and lodging are some of the expenses that qualify. They are part of miscellaneous itemized deductions. However, if you are looking for your first job, you’re out of luck. These expenses are not deductible.
Investor Deductions
If you subscribe to investment publications, be sure to include that expense. Do not overlook your investment adviser fees, estate planning fees (excluding wills), tax preparation fees, and mileage to your financial adviser or CPA. Safe deposit box fees are also deductible.
Child Care Credit
This is really a tax credit and not a deduction; however, it should not be overlooked. Twenty percent to 35% of child care expenses up to $3,000 per child (or $6,000 for two or more children) are allowed as a tax credit. Your actual percentage allowed is based on your income level, but will never be less than 20%. The qualifying children have to be younger than 13 years old and both parents must work or be disabled.
Remember, every tax deduction or credit that you miss means more money from your pocket and into Uncle Sam’s. Don’t leave money on the table. At Henssler Financial we believe you should Live Ready, which is why we suggest you consider professional tax preparation and planning. We are constantly vigilant looking for tax breaks that reduce the taxes you ultimately pay. If you have questions regarding your year-end tax planning, the tax experts at Henssler Financial will be glad to help. You may call us at 770-429-9166 or e-mail at experts@henssler.com.