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The 11 Most Overlooked Tax Deductions

The 11 Most Overlooked Tax Deductions

Kiplinger

7. Child care credit.

A credit is so much better than a deduction—it reduces your tax bill dollar for dollar. So missing one is even more painful than missing a deduction that simply reduces the amount of income that’s subject to tax. But it’s easy to overlook the child care credit if you pay your child care bills thorough a reimbursement account at work. Until a few years ago, the child care credit applied to no more than $4,800 of qualifying expenses. The law allows you to run up to $5,000 of such expenses through a tax-favored reimbursement account at work. Now, however, up to $6,000 can qualify for the credit, but the old $5,000 limit still applies to reimbursement accounts. So, if you run the maximum $5,000 through a plan at work but spend more for work-related child care, you can claim the credit on up to an extra $1,000. That would cut your tax bill by at least $200.

8. Estate tax on income in respect of a decedent.

This sounds complicated, but it can save you a lot of money if you inherited an IRA from someone whose estate was big enough to be subject to the federal estate tax. Basically, you get an income tax deduction for the amount of estate tax paid on the IRA balance. Let’s say you inherited a $100,000 IRA and the fact that the $100,000 was included in your benefactor’s estate added $45,000 to the estate tax bill. As you withdraw the money from the IRA and pay tax on it, you also get to deduct a proportional amount of the estate tax paid. If you withdraw $50,000 in one year, for example, you get to claim a $22,500 itemized deduction on Schedule A.

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