Paying taxes is an obligation that we should all adhere to as it helps to run the government and build some of the crucial amenities we use. However, the taxes one has to pay in the United States are not fixed as some people are eligible for some deductions that make them pay less than what is indicated. It is your responsibility to itemize your deductions and reduce the amount of money you have to pay in taxes. Unfortunately, most people are not aware of the deductions that are applicable to their situation and end up paying more than they are supposed to do. Looking at the figures presented, a huge chunk of the population do not file these deductions and end up overpaying their taxes every year. Here are some tax deductions that people commonly miss.
State Sales Taxes
This deduction applies to individuals who reside in states that do not impose an income tax. You have the option of selecting between state and local income taxes or state and local sales taxes which can all be deductible. For people living in states that do not have an income tax, deducting the income tax is usually the best way to go. The IRS has a clearly spelt out guideline for such people indicating how much they can deduct depending on how much they pocket every month. However, the amount stated in these tables are not final as some special situations can change the amount to be deducted. Taking an example, if you buy a boat or plane, you are supposed to add the state sales tax paid during the purchase to the money indicated on the IRS tables. These items are easy to forget, and you should always count them in your deductions.
Independent Charitable Contributions
It is difficult to bypass the massive charitable contributions you made during the year, but this does not apply to the small expenses. These small expenses count as well, and it is very common to see people overlook them. The law allows you to overwrite the out of pocket costs you incur when doing charitable acts. For instance, if you prepare some cakes for a charity event and have to incur some money buying the ingredients, make a point of including the amount spent. If you drove your vehicle for a charitable cause for a notable number of miles, remember to include this amount in your tax deductions.
Repaid Student Loans By Parents
Some time back, if your student loan was cleared by your parents, no one became eligible for a tax deduction. Actually, the law specified that for one to qualify for a deduction, the parties involved have to be both liable for the debt and that you, the student, had to pay it by yourself. However, things have changed a bit and there is an exception you could use to get a tax deduction. If your parents cleared the loan, the IRS looks at it as though they loaned the amount to the young one, who then paid the debt. Therefore, a child who is not regarded to be a dependent person qualifies for significant deductions if their loan interest is paid by the parents.
Tax Preparation Fees
You are supposed to deduct the amount of money spent in preparing your taxes as a miscellaneous deduction in the year you are supposed to pay those taxes. Taking an example, if you pay to prepare for 2018 taxes in 2017 with law offices of Dean Hines, you are allowed to deduct these costs in the year 2018. This situation may vary a little bit for small businesses, or for people collecting rents and royalties.
In the tax niche, hobbies are defined as tax purposes for sports and recreation activities, and not for profit. However, this deduction is not absolute as some hobbies can generate income. If a hobby generates an income, ensure that you report this on your return file. You are allowed to deduct the expenses of a hobby up to the amount of the income every year. This allowance helps you to get back some of the money spent by small entities that have not gained profit for the last couple of years.
Losses that route back to theft, vandalism or any related causes are deductible. You are also allowed to deduct the amount of money you had stored in a financial institution which was lost due to the bankruptcy of the institution. However, there are some limits to the amount allowed in this kind of deduction. First, the amount that has not been reimbursed by the insurance firm can be deducted and the amount related to each occurrence should not exceed $100.
Earned Income Tax Credit
This tax deduction is missed out by millions of citizens falling under the low-income earner’s bracket annually. The main reason why people miss out on this deduction is that some of the rules surrounding it are regarded to be complex and thus people may fail to understand if they are eligible or not. This credit is a refundable tax credit and not essentially a deduction. It is made to supplement the income generated by low and middle-income earners. Before one is deemed to be a fit candidate for this deduction, an analysis is done based on the income, marital status and size of the family. One is required to file a tax return even if they do not owe the government any taxes.
This is not a tax deduction as such, but it is a subtraction that can save you a lot of money. Most taxpayers miss out on this subtraction and it basically applies to investors who have mutual fund dividends that they choose to reinvest in shares. Looking at it, every dividend they get increases their tax status in the fund which increases the tax-saving loss when you opt to dispose of those shares.
The mentioned deductions are some of the common ones that taxpayers miss out every single year. You can save a lot of money by filing your deductions and claim your share from the trillions of dollars that taxpayers fail to claim every year.