Who among us wants to pay the IRS more taxes than we have to? While few may raise their hands, Americans regularly overpay because they fail to take all eligible tax deductions. The following provides a quick look at the six most overlooked opportunities to manage your tax bill.
1. Reinvested Dividends
A taxable event occurs when your mutual fund pays you a dividend or capital gains distribution (unless held in a tax-deferred account, like an IRA). Most fund owners reinvest these payments in additional shares of the fund. The tax trap lurks when you sell your mutual fund. If you fail to add the reinvested amounts back into the investment’s cost basis, it can result in double taxation of those dividends.
Mutual funds are sold only by prospectus. Please consider the charges, risks, expenses, and investment objectives carefully before investing. You can obtain a prospectus containing this and other information about the investment company from your financial professional. Read it carefully before you invest.
Note, the IRS taxes withdrawals from traditional IRAs as ordinary income. If taken before age 59 ½, they may be subject to a 10% federal income tax penalty. Generally, once you reach age 72 (previously age 70 ½), you must begin taking required minimum distributions.
2. Job Hunting Costs
A tough job market may cause you to look far and wide for employment. The costs of that search — transportation, food and lodging for overnight stays, cab fares, personal car use, and even printing resumes — may qualify as tax-deductible expenses, provided the search is not for your first job.
3. Out-of-Pocket Charity
Charity deductions include more than cash donations. If you donate goods or use your personal car for charitable work, you can deduct the value of the goods and the car mileage. Note, you will need a receipt for any amount over $250.
4. State Taxes
Did you owe state taxes at the time of filing of your previous year’s tax returns? If you did, don’t forget to include this payment as a tax deduction on your current year’s tax return. The Tax Cuts and Jobs Act of 2017 placed a $10,000 cap on the state and local tax deduction.
5. Medicare Premiums
Self-employed taxpayers who do not have coverage by an employer plan or a spouse’s plan may be eligible to deduct premiums paid for Medicare Parts B and D, Medigap insurance, and Medicare Advantage Plan. You can claim this deduction whether you itemize deductions or not.
6. Income in Respect of a Decedent
If you inherited an IRA or pension, you may qualify to deduct any estate tax paid by the IRA owner from the taxes due on the withdrawals you take from the inherited account.
Talk to a Tax Professional
If you need assistance determining the best methods to minimize your tax bill, meet with one of our team members. We can assess your specific situation and provide guidance on the best options for you.
The content is developed from sources believed to be providing accurate information. The information in this material is not intended as tax or legal advice. Please consult legal or tax professionals for specific information regarding your individual situation. This material was developed and produced by FMG Suite to provide information on a topic that may be of interest. FMG, LLC, is not affiliated with the named broker-dealer, state- or SEC-registered investment advisory firm. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security. Copyright 2021 FMG Suite.
Disclaimer of Liability
Our firm provides the information in this e-newsletter for general guidance only, and does not constitute the provision of legal advice, tax advice, accounting services, investment advice or professional consulting of any kind. The information provided herein should not be used as a substitute for consultation with professional tax, accounting, legal or other competent advisors. Before making any decision or taking any action, you should consult a professional advisor who has been provided with all pertinent facts relevant to your particular situation. Tax articles in this e-newsletter are not intended to be used, and cannot be used by any taxpayer, for the purpose of avoiding accuracy-related penalties that may be imposed on the taxpayer. The information is provided “as is,” with no assurance or guarantee of completeness, accuracy or timeliness of the information, and without warranty of any kind, express or implied, including but not limited to warranties of performance, merchantability and fitness for a particular purpose.