Top Ten Overlooked Tax Deductions and Credits That Costs Taxpayers Millions of $$$
Every year I hear people talking at a BBQ / Holiday Party about how they spent two Saturdays working on their taxes in some "Do-It-Yourself" tax software or went down to the local national tax prep office to get their taxes filed. I don't know about you but I can't afford to lose two Saturdays - life is too short! Taking your taxes to these national tax prep offices is like paying your dentist to perform a triple by-pass - quality and accuracy of service is extremely low. I can't tell you how many mistakes I have found on tax returns prepared by these national tax prep providers. All they are concerned with is getting you out the door as quickly as possible. Good luck getting in touch with someone if you need any guidance after your taxes have been filed from these national offices.
I will take the time to get to know your tax and financial situation inside and out. I am always a phone call, e-mail, or text message away. Just because you have filed your taxes does not mean your financial life has stopped. Pick up the phone and call me before you make any major financial decisions.
Here is a list of the ten most overlooked tax deductions / tax credits:
1) Mortgage points paid when refinancing - Paying points when refinancing to buy down (lower) your mortgage interest rate is commonly overlooked as it is sometimes only reported on your closing statement / HUD-1 settlement statement. These points are amortized (written-off) over the life of your loan. Extra bonus is if you already refinanced a prior time and paid points you are entitled to write the remaining un-amortized balance off in the year that you complete the new refinance.
2) State sales tax - In states where there is no income tax (Alaska, Florida, Nevada, South Dakota, Texas, Washington and Wyoming) this one can really add up tax savings wise due to those states normally having a higher sales tax rate to make up the lost revenue from not having an income tax. Even states with an income tax in years of auto / recreational vehicle purchases, house renovations, or any other large purchase(s) there still may be significant tax savings in comparing the higher of the income tax or sales tax deduction on the Federal tax return.
3) State income taxes you paid in a prior year - did you owe tax to any State when you filed your 2015 tax return? Well you can deduct whatever you paid for your 2015 State income taxes on your 2016 Federal tax return if you are itemizing your tax deductions.
4) Child and dependent care credit - If you are not already taking advantage of the Dependent Care FSA (Flexible Spending Account) through your employer I highly recommend doing this right away. The amount that you put in and pay for qualifying dependent care expenses will be excluded from Federal and State income tax as well as excluded from Social Security and Medicare tax. Depending on your tax bracket you could be looking at tax savings of 30% to 50% of the amount you contribute. So assuming you contribute the maximum $5,000 you would save $1,500 to $2,500 in taxes depending on your tax bracket. If you are paying for 2 or more qualifying dependents and you contribute the maximum $5,000 to your dependent care FSA and have an additional $1,000 in dependent care expenses that you have paid you may be entitled to an additional $200 Federal income tax credit when you file your tax return. There are many rules surrounding this one so definitely check with your tax adviser aka call me to discuss.
5) Out-of-pocket charitable contributions - Make sure you keep track of all of those volunteer miles when driving to the local soup kitchen and conducting school fundraisers for the PTO. In addition make sure you keep track of ingredients purchased for the meal that you donate to a local non-profit organization or items that you purchase at a PTO fundraiser. These items may be tax deductible and can add up quickly.
6) Personal property taxes paid when registering your vehicles, RVs, motorcycles, trailers, etc. - Some states assess a tax based on the value of your vehicle, RV, etc. and make you pay this tax when you register your vehicle. This tax is deductible if you are itemizing your deductions on your Federal tax return.
7) Moving expenses (including landing your first job) - If you move more than 50 miles away you can deduct the amount of miles you drive to move to your new location plus parking fees and tolls. In addition, any transportation and storage of your household goods is also deductible so this would include the cost of a moving company, PODS, or renting a U-Haul truck. If your employer pays for some or all of the moving expenses please consult a tax professional on how to properly account for this.
8) Reporting correct tax basis when you sell an investment - The investment firms have gotten better over the last few years about tracking accurate cost basis because they are now required to by Federal law. However, for investments purchased before 2012 they were not required to keep track of how much you purchased that investment for or track that your reinvested dividends were being added to your cost basis properly. Reporting an inaccurate basis could cost you a lot of those greenbacks.
9) Minor child claims themselves and utilizes their own personal exemption - I see this all the time. A minor child begins working, makes a little bit of money, and begins attending college. The parents no longer claim this child even though they meet all of the requirements to do so and the minor child did not need to claim themselves / utilize their own personal exemption. Always approach tax analysis at the immediate family level.
10) Not reporting all applicable business expenses - Are you self-employed? Freelancer? There are a slew of eligible business expenses that are overlooked on a regular basis that may be costing you thousands of dollars each year. I will go in more detail with a future blog.