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Many people do their annual taxes without realizing the huge benefits of tax deductions.
Tax deductions can be used to lower the tax liability of an individual, married couple, business, or organization. These deductions reduce the person’s taxable income amount, which means that they may end up owing less money to the Internal Revenue Service (IRS).
1. State Sales Taxes
People living in states that don’t impose income taxes should look into writing off state sales taxes.
Just like opportunity zone investment tax benefits, state sales tax write-offs are often overlooked. A few of the purchases that the tax can be counted in this write-off include vehicles, boats, airplanes, homes, or expensive home renovations. People living in the following states should consider using the state sales tax deduction:
- Alaska
- Florida
- Nevada
- New Hampshire
- South Dakota
- Tennessee
- Texas
- Washington
- Wyoming
2. Reinvested Dividends
Reinvested dividends are tax subtractions that work as tax deductions. Investors who have mutual fund dividends that automatically reinvest as additional shares need to take advantage of this tax subtraction.
The amount of the reinvested dividends should be subtracted from the sale proceeds. Without doing this, many people end up overpaying on their taxes.
3. Out-of-Pocket charitable contributions
There are many out-of-pocket charitable contributions that people frequently forget to claim as tax deductions. If someone donates food or meals to a soup kitchen or a non-profit charitable organization, they can deduct the money spent on the disposable baking dishes, cooking ingredients, and ready-to-eat foods.
People who donate their time working on a school or a charity mailout can deduct the amount of money they spend on paper, envelopes, and postage stamps. If a person drives their own vehicle while donating their time to a charitable organization, they can deduct the mileage on their taxes.
4. Student Loan interest
Those who have student loans may be overlooking a nice tax deduction. The amount paid for student loan interest can be deducted at tax time. What if someone else is making the payment on the student loan?
A person can deduct their student loan interest even if another person or party is making the loan payment.
5. Tax Credits for Child and Dependent Care
One tax credit that parents need to look into is the child and dependent care credit. Child care and dependent care are expensive. This credit reduces a person’s tax bill one dollar for each dollar they spent on care for their child or a dependent in their care up to the maximum allowed amount.
6. The Earned Income Tax Credit
The Earned Income Tax Credit (EITC) is a credit for those who are considered low income.
According to the IRS, of the people who qualify for this credit, an average of twenty-five percent of them fail to do so. The amount of this credit that a person, couple, or family qualifies for will depend on their income. If a person realizes they previously forgot to claim this credit, they have three years to go back and do so.
The above tax deductions and credits are commonly overlooked by Americans. People should look into each one to ensure they pay as little as possible to the IRS. For those entitled to a refund from the IRS, the above can help them get their maximum refund.
