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The 11 Most Overlooked Tax Deductions

The 11 Most Overlooked Tax Deductions

Kiplinger

Yes, friends, tax time is a dangerous time. It’s all too easy to miss a trick and pay too much. Years ago, the head of the IRS told Kiplinger’s Personal Finance magazine that he figured millions of taxpayers overpaid their taxes every year by overlooking just one of the money-savers listed below. Without further ado, here are our 11 most overlooked tax deductions. Claim them if you deserve them, and cut your tax bill to the bone.

1. State sales taxes.

This write-off makes sense primarily for those who live in states that do not impose an income tax. You must choose between deducting state income taxes or state sales taxes and, for most citizens of income-tax states, the income tax deduction usually is a better deal. IRS has tables for residents of states with sales taxes showing how much they can deduct. But the tables aren’t the last word. If you purchased a vehicle, boat or airplane, you get to add the state sales tax you paid to the amount shown in IRS tables for your state, to the extent the sales tax rate you paid doesn’t exceed the state’s general sales tax rate. The same goes for home building materials you purchased. These items are easy to overlook. The IRS even has a calculator on its Web site to help you figure out the deduction, which varies by your state and income level.

2. Reinvested dividends.

This isn’t really a deduction, but it is a subtraction that can save you money; this is the break former IRS Commissioner Fred Goldberg told Kiplinger’s that lots of taxpayers miss. If, like most investors, you have mutual fund dividends automatically invested in extra shares, remember that each reinvestment increases your “tax basis” in the fund. That, in turn, reduces the taxable capital gain (or increases the tax-saving loss) when you redeem shares. Forgetting to include the reinvested dividends in your basis—which you subtract from the proceeds of sale to pinpoint your gain—means overpaying your tax. TurboTax Premier and Home & Business tax preparation solutions include a very cool tool—Cost Basis Lookup—that will figure your basis for you and make sure you get credit for every dime of reinvested dividends.

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