Many people think that personal tax deductions are Schedule A itemized deductions, but in reality these IRS tax deductions come in a variety of places and ways. But no matter how you look at it, personal tax deductions reduce your taxable income, thus reducing the tax you ultimately have to pay. The amount of saved taxes resulting from these deductions depend on your marginal tax rate.
11 Tax Deductions You Might Have Overlooked
- Itemized Deductions. Even if you are in the habit of taking the standard deduction, keep track of your itemized deductions. Save yourself from paying more tax than you owe. See also itemized deductions limits.
- Vehicle Excise Tax. State or local government taxes for owning a vehicle may be deductible. Also if you lease a vehicle and receive a tax bill from your finance company, it is tax deductible. The deduction depends on the value of your vehicle. Ask the local tax authority if you aren’t sure how the tax was calculated.
- Job Hunting Expenses. Expenses incurred to locate a new job in the same line of work are deductible as a miscellaneous itemized expense. Save your receipts for job hunting expenses such as: phone bills, resume advice, and travel expenses.
- Real Estate Taxes. If you own a home or property the real estate taxes are deductible. Check for taxes paid through a mortgage escrow account. Also if you purchased a home, check the settlement statement for any deductible taxes you reimbursed the seller at closing.
- Cost of Tax Preparation. Tax preparation fees, tax software expenses, other preparation filing expenses are all deductible on your tax return as a miscellaneous itemized expense, in the year they are paid.
- Estate Tax on Income In Respect of a Decedent. Income inherited from a death needs to be included as income. If the estate of the person who dies was large enough to trigger an estate tax, ask the executor the amount of estate tax attributable to the income you received (such as a IRA distribution). This amount is tax-deductible.
- Capital Loss Carryover. If your capital losses are greater than your capital gains, you won’t have to pay tax on the capital gains. Also, you can deduct up to $3,000 of the capital loss, depending on your tax status (married, single, etc.). Any losses above the cutoff are called a Capital Loss Carryover and are regarded as a capital loss on your next year’s return. For example: If you have a capital loss one year and a capital gain the next year, bring forward your capital loss carryover to reduce your taxes in the latter year.
- Medical Deductions. People often assume because the first 7.5% of their AGI doesn’t count for medical deductions, that they won’t benefit from keeping track. When medical deductions help, they often help a lot.
- Reinvested Dividends. Often a mutual fund account is set up to automatically reinvest dividend in additional share purchases. When sold, the amount you subtract from the sales price to figure your gain or loss needs to include the reinvested amount.
- Credit for Excess Social Security Tax. Each employer you work for will withhold Social Security tax as if you didn’t work for anyone else. If you work multiple jobs during the year, look into the credit for excess Social Security tax. Once your wages reach the Social Security limit, any Social Security tax withheld after that is treated as a credit against the regular tax you owe for the year.
- State Tax Paid. State income taxes are deductible in the year they are paid.