The economy isn’t amazing, people are still struggling and tax day is just around the corner. Instead of avoiding it, putting off doing your taxes, resolve to face it head on and this year and save as much money as you can. Instead of taking the standard deduction I challenge you to itemize your deductions.
While it is more work the numbers are clear: Those who itemize their deductions claim, on average, 65% more than those choosing the standard deduction. From the most recent numbers (2009) those who itemized claimed a whopping $1,200,000,000,000. That’s Trillion with a “T”. Standard deduction claimants totaled 787,000,000,000 (Billion).
Below are the top 5 most overlooked deductions. Put this information to use and keep as much of your hard earned money as possible!
1. State Sales Tax
If you happen to be a citizen of one of the seven states that has decided not to impose a State income tax, then pay attention. You might be overlooking a sizable deduction from your state sales taxes.
When doing your taxes you need to choose between deducting either state and local income taxes or state and local sales taxes. Usually going with income taxes is better if you live in an income taxing state. However, If you’re in Tennessee or New Hampshire you’ll want to check to make sure, since these states only tax interest and dividend income.
The IRS provides tables for residents living in sales tax states showing the amount they can deduct. If you purchased a vehicle, boat, airplane, or home building materials then you can add the sales taxes you paid for those to the amount given in the table. It’s easy to forget about these.
No Income Tax States:
- South Dakota
Limited Income Tax States:
- New Hampshire
2. Reinvested Dividends
If you’re an investor who owns stocks or mutual funds that pay out dividends, and you have those dividends automatically reinvested into more shares, remember that the reinvestment increases your tax basis. This reduces the amount of taxable capital gains when you sell your shares.
When you forget to include your reinvested dividends in the cost basis you’re going to over pay on your taxes, because you need to subtract your cost basis from your sale amount to determine your gains. Click here for some helpful investing taxes tools.
3. Out-of-pocket charitable contributions
It’s usually pretty easy to remember big lump sums you donate to charitable causes. But it’s all the little things that people overlook. The money you spend on food for small charity events, the miles you drive while doing charity, stamps for fundraisers and so on. If you’re active in charity organizations you could be missing out on sizable deductions. For 2012, you can deduct 14 cents per mile if you were driving for charity.
4. Student Loan Interest Paid by Mom & Dad
If you still have student loan debt and your parents pay it off, the IRS will treat it as though your parents gave you the money and then you paid it off. You must not be claimed as a dependent by your parents. You can qualify for up to a $2500 deduction of student loan interest, paid by Mom and Dad.
5. Moving expense to take your first job
If you moved in order to take your first job out of college, your eligible for deducting the moving expenses you incurred to get to that job. You can deduct 23 cents per mile, plus parking fees and tolls for driving your own car to your new location.
I guarantee you it will be worth the effort to be thorough with your taxes. Keep these 5 most overlooked tax deduction in mind when you get ready to do your taxes and you may find that you can save yourself a hefty sum of money from just a small amount of effort. If you have any questions or comments feel free to leave them in the comments below. Good luck and here’s to a less painful tax season!