Ten Most Overlooked Tax Deductions

     Each year people worry about getting their tax returns audited.  But each year individuals try to get there taxes as low as they possibly can.  In this paper we will address some of the most common mistakes taxpayers make.

     The first mistake that taxpayers make every year is that they do not put their social security number on the tax return.  So if you are doing your own tax return PLEASE put your social security number on your tax return. 

      Someone told Kiplinger that they figured there were millions of taxpayers that overpaid their taxes every year. 

Listed below are a few mistakes that are made: 

1. State sales taxes: Although all taxpayers have a shot at this write-off, it makes sense primarily for those who live in states that do not impose an income tax. You must choose between deducting state and local income taxes or state and local taxes. For most citizens of income tax states, the income tax is a bigger burden than the sales tax, so the income tax deduction is a better deal. The IRS has tables that show how much residents of various states can deduct.

There are some things that can be added to the above figure.  If you buy an automobile, boat or airplane you can add the sales tax that you pay on it to the sales tax that the IRS table give you. 

Sometimes you just need to add up all the sales tax that you spend.  If you keep all your receipts (which not many people do) it that comes up more than the table you can take that figure BUT be sure you keep them for back up in the case of audit. 

A big one that a lot a people miss is if they are building a house, most all of the material that you use has sales tax on it.  Don’t forget that it could give you a bigger sales tax deduction and the same holds true if you are doing a big remodel project. 

2. Reinvested dividends: If your mutual fund dividends are automatically used to purchase extra shares, remember that each reinvestment increases your tax basis in the fund.  If you redeem the shares (or sell them) if you add the reinvested dividends into your basis you will reduce your capital gain that you pay and pay less in income tax.
   

3. 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. For example, ingredients for casseroles you prepare for a nonprofit organization's soup kitchen and stamps you buy for your school's fundraising mailing count as charitable contributions.  Don’t forget if you drive your car for charity in 2009 to deduct the mileage but be sure you document it.
   

4. Student-loan interest paid by Mom and Dad:  If parent’s pay back a child’s student loan, the IRS treats the money as if it were given to the child, who then paid the debt.

The child who is not claimed as a dependent can qualify to deduct up to $2500 in student loan interest that mom and dad paid.  You don’t have to itemize deductions to take this deduction. 

5. Child care credit: If you have a reimbursement plan for child care through your employer you still may be able to take a deduction, don’t over look this one.  $5000.00 is the max that can be paid through a reimbursement account (up to $6000 with two or more children) but if you spend more than the maximum for work-related child care, you can claim the credit on as much as $1,000 in additional child care expenses.
   

6. State Income tax paid last year. If you had to pay additional state tax over the amount of your withholding, or if you are self employed and paid state taxes for the year of 2008. Don’t forget to include the amount in your state tax deduction on your 2009 return, in addition to what was withheld and or estimated tax payment for 2009.
   

7. Property tax deduction for nonitemizers:  This break is one that a lot of people overlooked if they do not itemize deductions and claim the standard deduction.  You can boost your standard deduction up by $500.00 if you are single or $1000.00 if you are married and file a joint return by claiming the property taxes you paid in 2009.  You will need to claim that deduction on Schedule L.
   

8. Credit for college students: This credit has been renamed, increased and expanded. It's now called the American Opportunity Credit., and it will rebate up to $2,500 for each qualifying student for the first four years of college. The full credit is available to individuals whose modified adjusted gross income is $80,000 or less, or $160,000 or less for married couples filing a joint return. The credit is phased out for taxpayers with incomes above those levels.
   

9. Making Work Pay credit: You've probably been enjoying the fruits of this credit via reduced payroll tax withholding since spring 2009. But to lock in your savings -- by reducing your tax bill by $400 if you're single or $800 if you're married and file a joint return -- you'll need to claim the credit on your 2009 tax return. You'll use the brand-new Schedule M to do so.

The credit is equal to 6.2% of your earned income, capped at $400 or $800. For single filers, it starts phasing out at $75,000 of adjusted gross income and dries up at $95,000. The phase-out zone for couples is $150,000 to $190,000. 

10. Sales tax deduction for new vehicles: If you bought a new car, truck, motorcycle or motor home after Feb. 16, 2009, and before the end of the year, you can deduct the sales tax paid -- up to a maximum purchase price of $49,500 per vehicle -- as an itemized deduction or, if you claim the standard deduction, as an addition to the standard deduction.