The 10 Most Common Missed Tax Deductions

Let's be honest; taxes are confusing. Tax law often changes, and knowing what you're eligible for can be confusing. In most cases, people miss tax deductions simply because they don't know about them.

As a Colorado Springs tax accountant, clients are often surprised at the deductions they can take. At Bennett CPA, I work with clients to ensure they are taking advantage of all the deductions they are eligible for. This is the best way to lower your tax liability and maximize your refund.

Here are a few of the most common deductions that people often overlook.

1. State sales taxes

This deduction applies to those who live in a state that does not impose an income tax. If you live in any of the following states, you may be eligible to deduct your sales tax:

Alaska
Florida
Nevada
Tennessee
South Dakota
Texas
Washington
New Hampshire
Wyoming

You will have to choose between deducting state and local income taxes or state and local sales taxes. Ideally, you should select whichever saves you the most money. For example, if you bought a big ticket item, such as a boat, or completed major home renovations, you may be eligible to deduct the state's sales tax that you paid on the item.

The IRS has a sales tax deduction calculator that can help you determine the amount to claim. However, remember that your total deduction for state and local income taxes and sales taxes, combined, may not exceed $10,000 ($5,000 if you're married and filing separately).

2. Charitable donations

It's usually easier to remember the more considerable donations you've given to charity this year. But remember the smaller, out-of-pocket contributions, too!

You can write off costs that you've paid for charitable purposes. This includes cash donations or items you've bought for charity, such as clothes or food. Just make sure to get a receipt for any contributions made to charity so you can prove your expenses in the event of an audit.

If you donate $250 or more, remember that you also need an acknowledgment from the charity of your contribution. Here are some other charitable donations that you can deduct:

Out-of-pocket expenses for volunteering your time
Mileage costs associated with charitable activities
Unreimbursed expenses related to charitable work

3. Moving expenses

Unfortunately, most taxpayers lost the ability to deduct moving expenses in 2018. However, you can still write off some of your relocation costs if you're an active-duty military member.

You can deduct several moving costs, such as transportation, lodging, and the cost of shipping. Plus, if your move was ordered by the military and permanent, you don't have to pay tax on any qualified moving reimbursements you get.

4. Gambling losses

If you itemize deductions, gambling losses can be deducted from your taxable income up to the amount of gambling winnings you report. For instance, if you won $1,000 at the casino but lost $500, your gambling losses can be used to offset your winnings.

Costs of playing the lottery, raffle tickets, and non-winning bingo can also be deducted. Just remember to keep any receipts or tickets from your gambling activities. The IRS also suggests keeping a gambling log to record your wins, losses, and any wagers you made.

5. Jury pay paid to employer

In some instances, employers will continue to pay your full salary with the expectation that you will turn over any jury duty fees to them. This is because you have to report jury pay as taxable income.

As such, you're taxed on it. However, if you have an agreement with your employer that requires you to turn over the money, you can itemize the jury pay as an adjustment to income instead of having it be taxed as income.

6. Refinancing mortgage points

If you refinanced your home this year, you may be able to deduct some of the points you paid for the loan.

Mortgage points are considered prepaid interest and can be deducted over the life of the loan. You'll need to divide your total points by the number of payments made to get your deductible amount.

In addition, mortgage points must also be used directly or indirectly to buy or improve a primary or secondary residence. If you refinance a mortgage loan with the same lender, any remaining unamortized points from the previous loan must be included as part of the new loan's balance.

7. Student loan interest paid

Did you know that you can deduct interest paid on student loans? That's right — you can write off up to $2,500 in interest payments each year. This deduction is available regardless of whether you itemize deductions on your tax return.

If your parents or someone else is paying off your student loan, you can still take advantage of the deduction since it goes to the taxpayer whose name is on the loan. Just ensure you meet all the requirements for taking this deduction, such as making sure you're not a dependent.

8. Earned Income Tax Credit (EITC)

The EITC is a refundable tax credit, meaning you don't have to itemize deductions to take advantage of it. This credit can put money back into the pockets of low and moderate-income workers who meet certain eligibility requirements.

However, a lot of taxpayers don't know they qualify, or they forget to claim it. You may also be eligible to claim the EITC if you:

Lost a job
Had a pay cut
Worked fewer hours

The amount you'll receive from this credit depends on several factors, including your income and filing status.

9. National Guard or military reserves travel expenses

Members of the National Guard or military reserves who travel more than 100 miles away from home overnight can deduct certain travel expenses on their tax returns. This includes costs for meals, lodging, and transportation.

You can claim this deduction even if you take a standard deduction. Just make sure to keep any receipts and records of your travel, as well as proof that these expenses were for a duty-related activity.

10. Self-employed Social Security taxes

If you're self-employed and pay the entire Social Security and Medicare taxes, you can deduct the employer-equivalent portion of these taxes. This means you can write off half of the total amount paid for Social Security and Medicare taxes on your income tax return. In addition, you don't have to itemize deductions to take advantage of this deduction.

Get Help From a Colorado Springs Tax Accountant

Taxes are complicated, and navigating the deductions available can be daunting. That's why it's always a good idea to enlist the help of an experienced tax accountant to help. A qualified tax accountant can help you maximize your deductions and avoid potential problems.

Bennett CPA is a Colorado Springs CPA who provides expert advice, knowledgeable insights, and personalized guidance to individuals and businesses alike. Whether you need assistance filing your taxes or just have questions about deductions, Merrill Bennett can help. Contact Bennett CPA today to schedule an appointment and get started on your taxes.