I know I have been getting all my stuff together for getting my taxes prepared. I have an accountant who does them for me but I still get everything organized for him. I have been working with him for over seven years now. But each year I also try to continue my education and read up up things to not to overlook when doing your taxes. I saw this today;
The 11 Most Overlooked Tax Deductions
Every year, the IRS dutifully reports the most common blunders taxpayers make on their returns. And every year, at or near the top of the list, is forgetting to enter a Social Security number or making a mistake when entering the nine digits that identify us to IRS computers.
Before you bemoan such stupidity, ask yourself a simple question: Is that the most common error? Or just the most easily noticed goof?
Who knows how many people forgot — or never knew about — a deduction that could save them money? That’s not the kind of thing over which government bean counters lose a lot of sleep.
No doubt about it: The opportunity for mistakes is almost unlimited. The most recent numbers show that about 46 million of us itemized deductions on our 1040s — claiming nearly 1 trillion dollars’ worth of deductions. That’s right: $1,000,000,000,000! Another 85 million taxpayers claimed more than half a trillion dollars’ worth of standard deductions. Some of those who took the easy way out probably shortchanged themselves. (If you turned 65 in 2008, remember that you deserve a bigger standard deduction than younger folks.)
Yes, friends, tax time is a dangerous time. It’s all too easy to miss a trick and pay too much. Years ago, the head of the IRS told Kiplinger’s Personal Finance magazine that he figured millions of taxpayers overpaid their taxes every year by overlooking just one of the money-savers listed below. Here are the 11 most-overlooked tax deductions. Claim them if you deserve them, and cut your tax bill to the bone.
1. State sales taxes. Although all taxpayers have a shot at this write-off, it 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 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. These items are easy to overlook. The IRS even has a calculator on its Web site to help you figure the deduction, which varies by your state and income level.
2. Reinvested dividends. This isn’t really a deduction, but it is a subtraction that can save you a lot of money; this is the break former IRS Commissioner Fred Goldberg told Kiplinger’s that lots of 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 taxable capital gain (or increases the tax-saving loss) when you redeem shares. Forgetting to include the reinvested dividends in your basis-which you subtract from the proceeds of sale to pinpoint your gain-means overpaying your tax.
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 works.
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 2008, remember to deduct 14 cents per mile (35 cents a mile during the first half of the year 41 cents per mile for driving during the last six months done to aid victims of the floods and tornadoes in the Midwest.
4. Student loan interest paid by Mom and Dad. If the parents pay back their child’s student loan, IRS treats it as though the money was given 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 the cost of getting yourself and your household goods to the new area, including 19 cents per mile for moves during the first six months of 2008 and 27 center per mile for driving after June 30, plus parking fees and tolls for driving your own vehicle.
6. Military reservists travel expenses. If you are a member of the National Guard or military reserve, you may deserve a deduction for travel expenses to drills or meetings. To qualify, you must travel more than 100 miles and be away from home overnight. If you qualify, you can deduct the cost of lodging and half the cost of your meals, plus 50.5 cents per mile for qualifying driving during the first six months of the year and 58.5 cents per mile for driving after June 30, plus any parking fees or tolls for driving your own car. You get this deduction regardless of whether you itemize.
7. Child-care credit. A credit is so much better than a 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.
It’s easy to overlook the child-care credit if you pay your child-care bills through a reimbursement account at work. Until a few years ago, the child-care credit applied to no more than $4,800 of qualifying expenses. And, the law allows you to run up to $5,000 of such expenses through a tax-favored reimbursement account at work.
Now, however, up to $6,000 (for two or more children) 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 that extra $1,000. That would cut your tax bill by at least $200.
8. Estate tax on income in respect of a decedent. This sounds complicated, but it can save you a lot of money if you inherited an IRA from someone whose estate was big enough to be subject to the federal estate tax.
Basically, you get an income-tax deduction for the amount of estate tax paid on the IRA balance. Let’s say you inherited a $100,000 IRA, and the fact that the $100,000 was included in your benefactor’s estate added $45,000 to the estate tax bill. As you withdraw the money from the IRA and pay tax on it, you also get to deduct a proportional amount of the estate tax paid. If you withdraw $50,000 in one year, for example, you get to claim a $22,500 itemized deduction on Schedule A.
9. State tax you paid last spring. Did you owe tax when you filed your 2007 state tax return in the spring of 2008? Then remember to include that amount with your state-tax deduction on your 2008 return, along with state income taxes withheld from your paychecks or paid via quarterly estimated payments.
10. Refinancing points. When you buy a house, you get to deduct points paid to get your mortgage in one fell swoop. When you refinance a mortgage, though, 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. Not much, maybe, but don’t throw it away.
And, in the year you pay off the loan — because you sell the house or refinance again — you get to deduct all as-yet-undeducted points unless you refinance with the same lender. In that case, you add the points paid on the latest deal to the leftovers from the previous refinancing and deduct the expense ratably over the life of the new loan.
11. 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. You’ve always had a right to deduct the amount, so you weren’t taxed on money that simply passed through your hands. But now tax forms include a line dedicated to this deduction.
Source: Zachs newsletter from kiplinger.com
Tax Season Prep-work
Again I feel the better you keep good records the easier your tax filing will be. I suggest keeping a file for each year of tax returns, keep notes on what to make sure to claim next year. If you have someone prepare your taxes ask as many questions that you have, the more questions you ask the more you will learn. Any ideas or thoughts to help others let me know. Have a great day.