Getting the Most out of Life
5 Commonly Overlooked Tax Deductions
The tax-filing deadline is just around the corner — but before you send your forms to Uncle Sam, double-check to make sure you’re not missing these five commonly overlooked tax deductions:
1. State Sales Tax
Did you know you may be allowed to deduct either your state income tax or your state sales tax from your federal taxes? If you live in a state that doesn’t impose its own income tax, this is a particularly critical deduction, especially if you made any big purchases in the past year.
If you didn’t save every receipt last year, don’t worry — the IRS offers a Sales Tax Deduction Calculator that you can use to estimate the state sales tax you paid. Understand, however, that this calculator is based off of averages and doesn’t take any big-ticket items into account. Just enter your zip code, income, and some other basic information, and the IRS will let you know how much you can claim as a state sales tax deduction.
2. In-Kind Charitable Donations
Many people remember to deduct the checks they wrote to a 501(c)(3) nonprofit organization (a charitable organization), but did you know that in-kind donations of goods can also be counted as write-offs? If you prepared meals at home, donated used furniture, or contributed equipment or tools to qualified nonprofits, you can deduct the fair market value of those items. If it amounts to more than $250, you’ll need a signed receipt from the organization.
3. Medical Bills
Did your medical and dental care exceed 10 percent of your adjusted gross income (AGI)? (To put that in perspective, that’s $5,000 in medical bills if you have an AGI of $50,000.) If so, you can deduct the excess medical costs, above this figure, from your taxes. Note that insurance premiums are not counted within this, although if you’re self-employed you can deduct the cost of your health premiums as a business expense. Keep your medical receipts to prove what you’ve paid.
4. Saver’s Tax Credit
This tip is even better than a deduction: it’s an outright credit. This means you’ll receive a dollar-for-dollar credit on a portion of your costs. The Saver’s Tax Credit is available to low-to-moderate-income individuals over 18 who are not claimed as dependents. If you’re single and earned less than $30,000, or married filing jointly and earned less than $60,000, you can receive a credit for a portion of your voluntary retirement contributions, such as your IRA or 401(k) accounts. The IRS publishes a detailed chart illustrating what percentage of a credit you’ll qualify to receive.
5. Mortgage Points
Most people know that mortgage interest is tax deductible, but did you know that the points on your mortgage may be deductible, too? For the uninitiated, “points” refer to a way that home buyers can “buy down,” or reduce, the interest rates on their mortgages. Each point is one percent of the loan amount, and must be paid to the lender up front. Points can be tax deductible, though they must be spread through the life of the loan for refinances. When you finish the mortgage (for example, by selling the house), any remaining points are fully deductible in the year of the sale.
Don’t let these commonly overlooked tax deductions slip through your fingers. Keep your receipts, meet with a tax professional, and claim all the deductions you’re eligible to receive.