Our primary goal at Rosillo & Associates is to minimize your tax liability. So whenever we hear about taxpayers who may have missed possible money-saving deductions, credits and refunds, it’s like nails on a chalkboard. Compounding the pity is the fact that most taxpayers do not even realize that they can claim deductions and save thousands for many of the things they do in their everyday lives.
Don’t be just another person contributing to this unfortunate phenomenon. This is why we’ve compiled a list of 3 of the most commonly overlooked tax deductions and credits to help you make sure you get all the money you are owed this tax season.
State Sales Taxes
This write-off is significant especially if you live in a state that does not impose an income tax like Florida. Usually the income tax deduction turns out to be a better bargain for taxpayers—unless you made some very large purchases last year, like a boat or an airplane. But if your home state is without income taxes altogether, you can still deduct the sales tax you paid on purchases.
This deduction is an easy one to overlook, as keeping accurate records of all your purchases can seem a herculean task. But if you do, and take advantage of tools like the calculator on the IRS’s website to help determine the size of your deduction, it will be worth it.
Child Care Credit and Parent Care Deductions
As unpleasant as it is to miss out on a deduction, it is even more agonizing to overlook a tax credit. Where deductions simply reduce the amount you can be taxed on, credits actually reduce your tax bill dollar for dollar. One of the most forgotten tax windfalls is the childcare credit.
If your child or children, aged 12 or younger, qualify as dependents, you are eligible to receive a credit worth between 20% and 35% of what you pay for childcare while you work. Further, if you pay your childcare bill through a reimbursement account at work, using pretax dollars, you can reach the $5,000 expense limit the account affords but still claim the $6,000 credit; but you can only claim this amount if you spend more for work-related care. If you do so, and you max out your work plan, you can claim the credit on up to $1,000 of additional expenses, cutting your tax bill significantly.
Similarly, if one or more of your parents can be considered dependents and you pay for their care, you can deduct the costs related to their care. Qualifying costs include both in-home care and nursing home care. For these costs to be deductible the caregiver must be provided with Form 1099 or a W-2.
Reinvested Dividends
While not exactly a tax deduction or a credit, if you handle the dividends you reinvest properly, you can still save quite a bit. Most people use the dividends they earn from their investments to automatically buy extra shares. However, doing so increases your tax basis in the fund while potentially reducing your taxable gain when you go to redeem your shares. The mistake most people make occurs when they forget to include reinvested dividends in their basis. This oversight results in double taxation of the dividends and unnecessarily overpaying on your taxes.
To help you determine what your tax basis is, ask your investment fund for assistance. This should help ensure you get credit for the entire amount of reinvested dividends.
At Rosillo we are here to walk you through the entire complicated tax process, helping you avoid pitfalls and making sure you save as much money as possible. Feel free to contact us to learn more.