Lower your tax bill by making sure you claim these deductions!
At Evolution Tax Center, we are committed to helping you keep your money where it belongs — in your pocket! If you’re claiming the standard deduction instead of itemizing, you might be losing money. Here are 10 overlooked tax deductions you should claim if applicable:
1. State sales taxes
If, like us, you’re in Florida, you can benefit from this write-off. This also applies to Alaska, Nevada, New Hampshire, Tennessee, Washington, Wyoming, Texas, and South Dakota. Here’s why this matters: you must choose between deducting either state and local income taxes OR state and local state taxes. If you’re in an income-taxing-state, the state and local income tax deduction is probably the way to go.
For people in an income-tax free state, there are two ways to claim the state sales tax deduction on your tax return. You can either use the IRS tables provided for your state to determine what can be deducted or you can keep track of all the sales tax you paid throughout the year and use that.
Visit the IRS’s Sales Tax Calculator to see what you can deduct, and remember, the total of your itemized deductions for all of your state and local taxes is $10,000 per year.
2. Reinvested dividends
Strictly speaking, this isn’t a tax deduction but it can save you a lot of money. And it’s one that many taxpayers aren’t aware of! If you are an investor and have mutual fund dividends automatically invested in extra shares, note that each reinvestment increases your “tax basis”. This reduces the amount of taxable capital gain one you sell these shares.
Simply, this means that you are overpaying your taxes if you forget to include the reinvested dividends in your cost basis. You can use an online tool to determine your cost basis and ensure you’re getting credit for every time you reinvest dividends.
3. Out-of-pocket charitable contributions
Odds are, you’re not overlooking any big charitable contributions you’ve made during the year. But the little ones can add up too. Even the cost of a pie you made for a soup kitchen, for instance, or the cost of art supplies you bought for a school fundraiser can count as a charitable contribution. If you drove your car for charity in 2020, you can also deduct 14 cents/mile for this!
4. Student loan interest
Previously, tax deductions for student loans were only applicable if you were both liable for and paying the debt yourself. But things have changed now. If a parent or someone else paid back a student loan for you, the IRS will treat it as them giving you the money, and then you paying the debt. You can, therefore, deduct up to $2,500 of student loan interest, whether it has been paid by you or someone else.
5. Moving expenses for your first job
If you incur expenses looking for a job, you’re out of luck. But if you move for a first job, you can get a deduction. What’s more, this applies even if you don’t itemize! Moving more than 50 miles allows you to deduct 23 cents/mile of the cost of getting yourself and your property to the new area. Moving expenses are no longer deductible for federal taxes though, unless you’re in the military and complying with military orders.
6. Child and Dependent Care Tax Credit
A tax credit is even better than a tax deduction; it reduces your bill dollar by dollar instead of simply reducing the amount of taxable income. Make sure you don’t miss one of these, like the child and dependent care credit!
If you pay your childcare bills through a reimbursement account at work, it’s easy to overlook this one. You can run up to $5,000 through a tax-favored reimbursement account at work.
Up to $6,000 in care expenses can qualify for the credit, but the $5,000 from a tax-favored account can’t be used. You can still claim the credit on any additional amount you end up spending, however.
7. Earned Income Tax Credit
Many lower-income people take this credit annually. However, 25% of taxpayers eligible for this credit FAIL to claim it! If you’re one of the 25%, make sure you don’t miss this credit this year!
This is a refundable tax credit designed to supplement wages for low-to-moderate income workers. Many middle-class families are now eligible for this credit because they lost a job, took a pay cut, or worked fewer hours during the year. With the pandemic, unfortunately, this has been the situation for many people.
The exact refund depends on the income, marital status, and family size. In addition, you must file a tax return to receive the refund, even if you don’t owe the IRS any taxes.
Did you or a friend miss the credit in the past? You can file any time during the year for up to 3 previous years!
8. State tax you paid last spring
Remember to include the state tax you paid last spring if you owed taxes when you filed your 2019 state tax return. The deduction for state and local taxes is now limited to $10,000 per year.
9. Refinancing mortgage points
When you buy a house, you can often deduct points paid to obtain your mortgage all at once. However, when you refinance a mortgage, you have to deduct these points over the course of the loan. For a 15-year mortgage, that means you can deduct 1/15th of the points in one year. This may not come down to a lot of cash, but why waste it? If you end up not deducting these points, you can deduct all the points at once when you pay off the loan — unless you refinance with the same lender.
10. Jury pay paid to employer
The IRS demands that jury fees be reported as taxable income. If your employer pays your full salary while you perform your civic duty, but asks that you turn over your jury fees to the company, make sure you deduct the amount so you aren’t getting taxed on money that you simply passed forward.
Don’t want to stress about credits or deductions this year? We can ensure that you don’t miss ANY credits or deductions you deserve, guaranteed. Book a FREE appointment today: https://msgsndr.com/widget/booking/kIWnLZ6tnIKZ5fZ6akhN
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