Missed “tax deductions” in tax returns is a common problem that plagues many Americans, and it is a shame that Kiplinger’s Personal Finance magazine was informed once upon a time, that millions of American taxpayers miss out on the golden opportunity of saving thousands of tax dollars by overlooking some common deductions that they are eligible for!
Research states that $1 trillion worth of deductions and $700 billion worth of standard deductions are claimed every year―and that staggering figure should indicate the importance of claiming deductions. Those of you, who are not claiming common deductions available at your disposal, are committing a significant disservice to yourselves.
In matters of personal finance, Americans generally like to know all the pertinent details on a topic before making an informed decision. This trend hold true in case of tax returns too, which includes a discussion of commonly overlooked tax deductions. Do not overlook this concept; you can spend your money better than the government can spend your money and this has been the case for centuries throughout all civilizations.
However, some American tax payers are either too lazy to itemize deductions on their 1040s, or they are not informed enough to know which common deductions they are eligible for. For the benefit of the second group of tax payers, this article discusses some commonly overlooked deductions that may save you thousands of hard-earned dollars every year!
It is a shame that millions of Americans overpay on their taxes, and it is high time the rules of the game were spelled out, so that the average tax payer in America can take advantage of all probable deductions.
Some common scenarios for claiming tax deductions have been mentioned and discussed in brief here. Next time you are ready to file your tax returns, just sit with the checklist provided below, and see if you can apply a few of the outlined deductions within your taxation framework:
Claiming Deductions on Paid State Sales Tax
Think of all the high-value items such as car, boat, jewelry you have purchased within the current assessment year, and calculate the sales tax paid on those items. When you are ready to file your returns, you will certainly itemize all your deductions in 1040s, and add one entry for “paid sales tax”.
Since you are given a deduction claim option between “state income tax paid” and “state sales tax paid”, you need to calculate which one is higher in your case and claim that one. If you live in a state where you do not pay state income tax, then you definitely need to claim that deduction for the state sales tax paid.
Claiming Tax Deductions on Dividends from Investments
You can claim deductions on all your reinvested dividends from different investment portfolios. If you are not claiming this deduction, you are guilty of paying tax for the same item twice! Please note though that you are eligible to claim this deduction if and only if you have reinvested the dividends drawn from investments.
Claiming Deductions on Charitable Contributions
(Made by check or via auto-debit facility from your employer’s payroll)
You must be meticulous about saving the receipts of your charitable contributions. Add up the value from all the receipts and claim that as deduction on your tax return. You know the recession will probably not end until 2016 depending on who takes over at the presidential helm; this is a tough economy. You cannot afford to pass up on these opportunities. You are taxed enough, more than enough and there are still pot holes in the streets, a broken public school system, military inadequacy (no missile shield such as Iron Dome), severe health insurance issues, and so on. You cannot afford to hand the government over more money because taxes in America have never been higher (not when in conjunction with the overall living costs that most Americans face every day) and have never come from so many directions. The government at all levels receives enough money from you and much of it is wasted.
Claiming Deductions on the Interest Portion of a Repaid Student Loan
If you are not a dependent, you can claim up to $2,500 of deductions on your student-loan interest, paid by your parents. Even though your parents are repaying the student loan, you are eligible to claim a deduction on the interest portion because it is you, and not your parents, who are liable for the loan repayment.
Claiming Deductions on Job Hunting Costs
As you go job hunting for a second or subsequent job in the same field of work because you need to make more in this expensive and higher tax growing environment, you can claim deductions on itemized job-hunting expenses like car driving and gas expenses, food and lodging expenses, cab fares, and job-search related stationary expenses.
Claiming Deductions on Moving Costs for First Job
You cannot claim deduction on expenses incurred during your first job hunt, but you can claim deductions on moving costs associated with the first job, which could include transportation expenses, packing expenses, home hunting expenses, and so forth.
Claiming Deductions on Child-Care Credit
In case of child care expenses, you can qualify for a tax credit, which is worth somewhere between 20% and 35% of what you pay for child care. The tax credit is more profitable than a deduction.
Claiming Deductions on Educational Expenses
If you have incurred expenses on re-educating or re-skilling yourself to maintain or improve your employability, then you can claim deductions on such expenses.
Claiming Deductions on Estate Tax on Income in Respect of a Decedent
This item may involve some complicated calculations, but very simply put, it means you can claim deductions if you inherited an estate big enough to be subject to the federal estate tax.
If you have further queries or concerns regarding common deductions you are eligible for, then please check out this link on IRS’s website: Commonly Overlooked Tax Deductions Checklist.