Itemized Deductions Most Overlook
March 28th, 2010 by Income Tax Pro
You might be overpaying your taxes if you chose the standard deduction over itemized deductions. The Internal Revenue Service estimates that in 2007 nearly 51 million taxpayers itemized deductions on tax form 1040A and claimed more than 1.33 trillion dollars worth of tax deductions. That is trillion as in $1,333,000,000,000. Standard deduction tax payers, about 91 million of them, claimed more than 654 trillion dollars of tax deductions. Before you take the standard deduction over itemized deductions on tax form 1040A, make sure that you haven’t overlooked the tax deductions below.
State Sales Taxes
The American Recovery and Reinvestment Act permits taxpayers to take tax deductions for state and local sales and excise taxes paid on the purchase of new cars, light trucks, motor homes and motorcycles. This special recovery effort tax deduction is available on new vehicles purchased from Feb. 17, 2009 through Dec. 31, 2009. In states without sales tax, the American Recovery and Reinvestment Act provides a tax deduction for other taxes or fees paid.
Dividend Reinvestment
If you own mutual funds with automatic dividend reinvestment, you must remember that each dividend reinvestment increases your tax basis in the mutual fund. Increasing tax basis reduces your taxable capital gain when you sell shares. TurboTax Premier and Home & Business tax software editions include Cost Basis Lookup tools that calculate your tax basis and make sure you get full credit for dividend reinvestment plans.
Charitable Contributions
Most likely you will add in any big charitable gifts you made during the tax year, however, little charitable contributions can add up too. You can deduct out of pocket costs incured while doing good deeds, but remember to keep your receipts. Food ingredients and related expenses used to cook for a nonprofit organization’s soup kitchen. Cost of stamps purchased for your child’s school fundraiser. These and other out of pocket costs count as a charitable contribution. Likewise if you drive your car to support a charity, you can deduct the per mile rate.
Student Loan Interest
In the past if parents made payments on a student loan for the benefit of their children, neither student nor parent got a tax deduction. The law previously stated that you had to be both liable for the debt and pay for it yourself. Now there is an exception. If parents make payments on the student loan, it is treated as if the parents gave the money to the child who then paid the debt themselves. A child not claimed as a dependent can now qualify to deduct up to $2,500 of student loan interest paid by themselves or parents.
Job Hunting vs. Moving Expense
Job hunting expense incurred while looking for your first job may not be a tax deduction, however, moving expenses to get to your first job are tax deductions. Even if you don’t itemize you can claim this tax deduction. For 2009 if you moved more than 50 miles you can deduct 24 cents per mile as a cost of getting yourself and your belongings to the new location. Parking fees and tolls are additional moving expenses.
Property Tax Deductions
If you paid property taxes but don’t want to itemize, you can qualify for an additional standard deduction of up to $500 or $1,000 if married filing jointly. This benefit was available in 2008 and extended into the 2009 tax year. There are no income limits to claim this property tax standard deduction boost.
Child Care Credit
If you pay your child care bills through a reimbursement account at work, you might be overlooking an extra $1,000 in child care credit. The child care credit allows you up to $5,000 of expense through a tax favored reimbursement account at work. However, the child car credit limit is $6,000. Therefore if you use the maximum $5,000 through a plan at work and spend more for work related child care, you may qualify to claim the child care credit up to an extra $1,000.
Earned Income Tax Credit (EITC)
It’s estimated that 25% of taxpayers who are eligible for the earned income tax credit fail to claim it. Earned Income Tax Credit or EITC is a refundable tax credit which ranges from $438 to $4,824. The EITC credit supplements wages for low to moderate income households. Millions more individuals and families considered to be middle class may now qualify because of job loss, pay cuts, or fewer part time hours worked.
State Tax Paid
Remember to include the tax amount you paid your state last year along with state income tax withheld from paychecks or paid quarterly by estimated payments.
Refinancing Points
If you paid point to buy a house, you get to deduct points paid to obtain your mortgage. If you refinance a mortgage, you deduct the points over the life of the loan, not all at once. If you pay off the loan early, because you sell the house or refinance again, you can deduct all the points not yet deducted unless you refinance with the same lender.
Jury Duty Pay
Selected for jury duty? If your employer pays you full salary while on jury duty but ask you to turn over jury duty pay to the company, the jury duty fees are considered taxable income. You will need to deduct the amount given to your company so that you are not taxed on it.
Itemized deductions can seem confusing and endless at times. That’s when income tax preparation software can help. TurboTax can help ensure that you don’t miss the above itemized deductions or other tax credits you deserve. Get your biggest refund, guaranteed, when you use TurboTax edition software.
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