IRS Audit

7 Most Overlooked Tax Deductions

tax_deductions
Written by Pauline Ho

Wasting a tax deduction costs you money, so don’t do it by failing to take every write-off you’re entitled to. Here are seven tax breaks that are all too easy to overlook:

1. Capital Loss Carryovers

If you had a pre-2017 capital loss from the sale of an investment (getting rid of a bad stock pick, for instance) that you weren’t able to use, you have a capital loss carryover. Don’t forget to use it this year (look over last year’s return to find the amount of your carryover). You can use the carryover to offset any capital gains this year (including capital gain distributions from mutual funds). If the carryover is greater than your capital gains this year or you had no gains, you can use up to $3,000 to offset ordinary income (salary, bank interest). If any part of the carryover remains, it can again be carried forward to 2018.

2. Medical Expenses You Pay For A Parent

If you’re helping to support an elderly parent but can’t claim him/her as a dependent because the parent has gross income over $4,000 in 2017, you may still benefit tax-wise from medical costs you pay on your parent’s behalf. As long as you provide more than half your parent’s support, you can add medical costs you pay for your parent with your own out-of-pocket medical costs when itemizing your medical expenses. Remember, only medical costs in excess of 10% of your adjusted gross income (7.5% of adjusted gross income if you’re age 65 or older) are deductible.

3. Out-of-pocket Expenses For Charity

If you pay for supplies or other items for a charity (e.g., you care temporarily for a rescue animal in your home, paying for pet food and other supplies), you can deduct these costs when itemizing. The cost of driving your car (e.g., delivering meals on wheels) is deductible at the rate of 14 cents per mile. Be sure to keep records and, if expenses are $250 or more, obtain a written acknowledgment from the charity about your activities.

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4. Prior Year State And Local Taxes Paid In The Current Year

If you paid outstanding state income taxes when you filed your 2016 state income tax return in 2017, your payment is deductible on your 2017 federal income tax return (as long as you itemize and don’t opt to deduct state and local sales taxes instead). Also, if you prepaid your 2018 property taxes or made the final state income tax estimated payment for 2017 due in January 2018 before the end of 2017, you can also deduct them on your 2017 return.

5. Car Expenses

While you may not be able to deduct the cost of operating your vehicle, some deductible car-related expenses can be easily overlooked. As long as you itemize, you can deduct any ad valorem taxes you paid (not all states impose them). These are taxes based on the value of your car. If you buy special license plates designed to help charitable causes, while the IRS hasn’t ruled on this matter, it’s likely that you can deduct the excess cost over what you would have paid for a basic plate as a charitable contribution.

6. Educator Expenses

If you’re teacher, coach, guidance counselor or principal in grades K–12, your out-of-pocket costs for your students are deductible up to $250, whether or not you itemize. If your expenses are greater, amounts over $250 can be treated as unreimbursed employee business expenses, which are deductible as miscellaneous itemized deductions (to the extent they exceed 2% of adjusted gross income).

7. Jury Duty Pay Turned Over To Your Employer

Being called for jury duty may have no impact on your job compensation if your employer pays you the same while you perform your civic duty. Typically, when this is done you have to remit any compensation you receive from the court to your employer. While jury duty pay is taxable, you can claim a deduction for the amount you turn over to your employer. You don’t have to itemize to get this tax break.

Article references:
http://www.investopedia.com/articles/personal-finance/022515/7-most-overlooked-tax-deductions.asp

About the author

Pauline Ho

Pauline Ho was born in Hong Kong and educated in Hong Kong and the United States. She is a U.S. CPA in both Florida and Washington states and a U.K. Chartered Accountant. She has a Bachelor’s of Science in Accounting from Hong Kong, a Master’s Degree in Business Administration from Andrews University of Michigan, and a master’s Degree in Accounting from University of Central Florida.

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