The 13 Most Overlooked Tax Deductions

Here's a list from Kiplinger's of their 13 most overlooked tax deductions:

1. State sales taxes. It 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. For most citizens of income-tax states, the income-tax deduction is a better deal.

2. $250 educators' expenses. Teachers and their aides can deduct up to $250 they spent in 2007 for books and classroom supplies.

3. College tuition. You may qualify to deduct up to $4,000 you paid in college tuition in 2007 for yourself, your spouse or a dependent.

4. Student loan interest paid by Mom and Dad. If Mom and Dad pay back the loan, IRS treats it as though they gave the money to their child, who then paid the debt. So, a child who's not claimed as a dependent can qualify to deduct up to $2,500 of student loan interest paid by mom and dad.

5. Out-of-pocket charitable contributions. It's hard to overlook the big charitable gifts you made during the year, by check or payroll deduction. But little things add up, too, and you can write off out-of-pocket costs you incur while doing good works.

6. Moving expense to take first job. Job-hunting expenses incurred while looking for your first job are not deductible; but moving expenses to get to that first job are.

7. Military reservists travel expenses. If you are a member of the National Guard or military reserve, you may deserve a deduction for travel expenses to drills or meetings.

8. Child-care credit. Up to $6,000 (for two or more children) can qualify for the credit.

9. Estate tax on income in respect of a decedent. Basically, you get an income-tax deduction for the amount of estate tax paid on the IRA balance.

10. State tax you paid last spring.

11. Refinancing points.

12. Reinvested dividends. This isn't really a deduction, but it is a subtraction that can save you money.

13. Jury pay paid to employer.

I think there's a reason these are often overlooked -- they don't apply to many people. Of all of these, I've only been able to claim #5, #10, #11, and #12 throughout the many years I've been paying taxes.

How about you? Any new ones here that you think you might qualify for?

Comments

[Phil]

Sorry, I don't understand #12, reinvested dividends. How do you figure this to be a "subtraction that can save you money"? I have a lot of these and haven't noticed Turbo Tax handling the reinvested dividends differently than ordinary income.

I use 5 (don't forget all the driving you might do in volunteer work - you can just add up the miles) and 10. Here in PA we have a ~3% state income tax. The sales tax is ~6%, but doesn't include food or clothing, so we pay more in state income tax than in sales tax.

[FMF]

Phil --

Did you click through to the Kiplinger article and read the details on #12?

[Hawkmoon Nine]

That's the one that caught my attention too Phil, but it's not the dividend tax they are talking about it's the capital gains tax if people count reinvested dividends as zero cost basis instead of dividend received/new shares bought.

[Kevin]

Reinvested dividends aren't really a deduction, they are an increase of basis when you sell the underlying securities. Calling it a deduction is a bit of a stretch, in my opinion.

Beware of #5 as it is subject to new rules this year as far as support for the deduction. Basically you have to have some kind of receipt from the charity. Hard to do when you're dropping a few bucks into the bellringer's kettle at Christmas time.