The government gets millions of dollars each year from tax-payers who don’t get the refund that they deserve. Opting to do your own taxes can place you at greater risk of missing out on these valuable deductions. Here are the most commonly overlooked tax deductions:
1. Out-of-pocket charitable contributions
Many people remember to deduct monetary donations, but forget to do the deduction for donation of goods. Contributions that can be deducted as well may include such donations as items donated to the Christmas angel tree, donated dog food to the Humane Society, or donated books to the local library.
2. Student loan interest
A student loan interest deduction can be claimed even if someone else pays your student loan on your behalf. You just cannot be claimed as a dependent on another person’s tax return.
3. Reinvested dividends
If you have mutual fund dividends automatically invested in extra shares, each reinvestment increases your “tax basis” in the stock or mutual fund. This will reduce the amount of taxable capital gain at time of sell.
4. Child and Dependent Care Tax Credit
A tax credit is way more rewarding that a tax deduction, because a tax credit reduces your tax bill dollar for dollar. Claiming your qualified child and dependent care expenses can equate to a tax credit of up to $4,000 per one child or $8,000 per two or more children in 2021.
5. State tax you paid last spring
Did you owe taxes when you filed your 2020 state tax return in 2021? Then remember to include that amount with your state tax itemized deduction on your 2021 return. There is a limitation of $10K on claiming state and local taxes paid on itemized deductions.
6. Refinancing mortgage points
When you buy a house, you often get to deduct points paid to obtain your mortgage all at one time. When you refinance a mortgage, however, you have to deduct the points over the life of the loan. That means you can deduct 1/30th of the points a year if it’s a 30-year mortgage.
7. Jury pay paid to employer
Some companies give their employees full pay while serving jury duty, but the company may ask that you turn over the jury duty pay from the courts to the company. The problem is that the IRS still expects you to report that taxable income from serving on the jury, even though you didn’t keep it. If you remit the jury duty pay back to your employer be sure to offset the jury duty income by the remittance.
8. EITC – Earned Income Tax Credit
According to the IRS, 25% of taxpayers who are eligible for the Earned Income Tax Credit fail to claim. Chances are it is frequently missed because the rules can be very complicated and people fail to realize that they qualify. Many people don’t realize that it can be beneficial to middle class households as well as low-income households. A middle-class household could qualify if they had a reduction in income due to loss of job, a reduction in pay, or worked less hours.