ICFE eNEWS #18-04 - February 26th 2018
10 Most Overlooked Tax Deductions
By Jim Garnett, a/k/a Ask Mr.G, a member of the ICFE's Board of Educational Advisors
10 Most Overlooked Tax Deductions
By Jim Garnett, a/k/a
Ask Mr.G, a member of the ICFE's Board of Educational Advisors
The most recent numbers show that more than 45 million of us
itemized deductions on our 1040s - claiming $1.2 trillion
dollars' worth of tax deductions. That's right:
$1,200,000,000,000! That same year, taxpayers who claimed the
standard deduction accounted for $747 billion. Some of those who
took the easy way out probably shortchanged themselves. (If you
turned age 65 in 2017, remember that you deserve a bigger
standard deduction than younger folks.)
1. State sales
This write-off makes sense primarily for those who
live in states that do not impose an income tax. You must choose
between deducting state and local income taxes, or state and
local sales taxes. For most citizens of income-tax states, the
income tax deduction usually is a better deal. IRS has tables
for residents of states with sales taxes showing how much they
can deduct. But the tables aren't the last word. If you
purchased a vehicle, boat or airplane, you get to add the state
sales tax you paid to the amount shown in IRS tables for your
state, to the extent the sales tax rate you paid doesn't exceed
the state's general sales tax rate. The same goes for home
building materials you purchased.
This isn't really a tax deduction, but it is a
subtraction that can save you a lot of money. And it's one that
many taxpayers miss. If, like most investors, you have mutual
fund dividends automatically invested in extra shares, remember
that each reinvestment increases your "tax basis" in the fund.
That, in turn, reduces the amount of taxable capital gain (or
increases the tax-saving loss) when you sell your shares.
3. Out-of-pocket charitable contributions.
It's hard to
overlook the big charitable gifts you made during the year by
check or payroll deduction. But the little things add up, too,
and you can write off out-of-pocket costs you incur while doing
good deeds. Ingredients for casseroles you regularly prepare for
a nonprofit organization's soup kitchen, for example, or the
cost of stamps you buy for your school's fundraiser count as a
charitable contribution. If you drove your car for charity in
2017, remember to deduct 14 cents per mile.
loan interest paid by Mom and Dad.
In the past, if parents
paid back a student loan incurred by their children, no one got
a tax break. To get a deduction, the law said that you had to be
both liable for the debt and actually pay it yourself. But now
there's an exception. If Mom and Dad pay back the loan, the IRS
treats it as though they gave the money to their child, who then
paid the debt. So a child who's not claimed as a dependent can
qualify to deduct up to $2,500 of student loan interest paid by
Mom and Dad.
5. Moving expense to take first job.
Here's an interesting dichotomy: Job-hunting expenses incurred
while looking for your first job are not deductible, but moving
expenses to get to that first job are. And you get this
write-off even if you don't itemize. If you moved more than 50
miles, you can deduct 23 cents per mile of the cost of getting
yourself and your household goods to the new area, plus parking
fees and tolls for driving your own vehicle.
6. Child and
Dependent Care Tax Credit.
A tax credit is so much better
than a tax deduction - it reduces your tax bill dollar for
dollar. So missing one is even more painful than missing a
deduction that simply reduces the amount of income that's
subject to tax.
Now, however, up to $6,000 can qualify for
the credit, but the old $5,000 limit still applies to
reimbursement accounts. So if you run the maximum $5,000 through
a plan at work but spend more for work-related child care, you
can claim the credit on up to an extra $1,000. That would cut
your tax bill by at least $200.
7. Earned Income Tax
According to the IRS, 25% of taxpayers who are
eligible for the Earned Income Tax Credit fail to claim it,
according to the IRS. The EITC is a refundable tax credit - not
a deduction - ranging from $510 to $6,318 for 2017. The credit
is designed to supplement wages for low-to-moderate income
workers. But the credit doesn't just apply to lower income
people. Tens of millions of individuals and families previously
classified as "middle class" - including many white-collar
workers - are now considered "low income" because they: lost a
job took a pay cute or worked fewer hours last year.
State tax you paid last spring.
Did you owe taxes when you
filed your 2016 state tax return in 2017? Then remember to
include that amount with your state tax itemized deduction on
your 2017 return, along with state income taxes withheld from
your paychecks or paid via quarterly estimated payments.
9. Refinancing mortgage points.
When you buy a house, you get
to deduct points paid to obtain your mortgage all at one time.
When you refinance a mortgage, however, you have to deduct the
points over the life of the loan. That means you can deduct
1/30th of the points a year if it's a 30-year mortgage - that's
$33 a year for each $1,000 of points you paid. Doesn't seem like
much, but why throw it away? Also, in the year you pay off the
loan - because you sell the house or refinance again - you get
to deduct all the points not yet deducted, unless you refinance
with the same lender.
10. Jury pay paid to employer.
Some employers continue to pay employees' full salary while they
are doing their civic duty, but ask that they turn over their
jury fees to the company coffers. The only problem is that the
IRS demands that you report those fees as taxable income. If you
give the money to your employer, you have a right to deduct the
amount so you aren't taxed on money that simply passes through
© Jim Garnett, The Debt Doctor
AskMrG Consulting, LLC
2216 SW 35th Street
Ankeny, IA 50023