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Top 7 overlooked tax deductions

Filing taxes can be overwhelming as it involves gathering the necessary receipts, income statements, and expense sheets and working for hours on end. It is also an important task, as filing improperly can land one in trouble with the IRS. Also, most individuals commonly miss out on taking advantage of the possible tax deductions available to them. As a result, they end up paying high taxes. Here are 7 tax deductions that are commonly overlooked:

Charitable contributions
Many taxpayers make charitable contributions during an annual year. Most of the time, these contributions are made via cheques or online transfers. Some might even be donating appreciated securities. That said, there are other expenses one might be making out-of-pocket. These can be traveling expenses for one of their volunteering trips or cooking for a soup kitchen. Essentially, any charitable contributions made to help charities can be highly overlooked when filing taxes. To file these expenses as tax deductibles, individuals must keep these receipts handy. They need to itemize and categorize these expenses properly to make the most of this opportunity and ensure they are not denied refunds due to limitations and restrictions.

Child tax credit
For 2023, the child tax credit was estimated at up to $2000. The amount was set for each of the dependents who were younger than 17 years of age. Out of the assigned amount, individuals can get a refund of up to $1600. However, some factors impact the amount of refund the filers receive. One such factor is the adjusted gross income. In the case of single filers, the refund amount decreases if the gross income is above $200,000, while for joint filers, it is $400,000. Individuals falling above the income spectrum will only be eligible for partial tax.

Jury pay paid to the employer
When an individual is fulfilling jury duty, the employer is expected to pay them the full salary. Against that pay, the employer might ask the individual to send them any fees they receive for jury duty. Employees can use this as a tax deduction opportunity. When a person receives any income as jury duty, it becomes taxable. However, when the amount is turned over to the employer, the individual can file it as a tax-deductible income and save on their annual tax fees.

Home office deduction
Self-employed individuals who work from home can apply for home office tax deductions. This is one of the most commonly overlooked deductions by most people. To apply for the deduction, individuals must maintain proper records and ensure they are abiding by the rules set by the Internal Revenue Service. The deduction may, at times, also be applicable for employees with a side job or freelance gig aside from their full-time job. However, the individuals must ensure that the home office is their principal place of business. To calculate the expenses, individuals need to determine the percentage of the home being used as an office and then deduct the same percentage of expenses from overall home expenses. This includes rent or mortgage, utilities, and property taxes. Alternatively, some would recommend simply deducting an estimated amount of $5 per square foot of the area of the place for up to 300 square feet.

Qualified business income
Another benefit for self-employed individuals is that they might qualify for business income deductions. Businesses that are partnerships, sole proprietorships, or S-Corps may be eligible for this deduction. The business, however, should be located within the country, and the tax deduction will depend on the client’s tax filing status. The tax deduction known as 199A or qualified business income lets owners gain the benefit of up to 20% of their shares. These benefits will not be applicable beyond a certain income limit and come with restrictions like the necessity of the business being located within the country.

State sales taxes
This tax deduction is beneficial for most individuals, especially those who live in states that do not have any state income tax. In states where individuals have to account for both state income tax and state sales tax, they might need to decide which one they want deductions for. In some cases, individuals can apply for a deduction from both taxes. There are two potential routes through which individuals can claim state sales tax deductions. A simple option is to use the state-specific IRS tables. However, even state sales taxes will have certain limitations and restrictions.

Reinvested dividends
When individuals make some additional income from capital gains and dividends from mutual funds, they have to pay taxes for this income. An exception to this rule may be the mutual funds placed in a tax-deferred account. In most cases, individuals reinvest these earnings in shares of the same fund or others. However, if the individual decides to sell these shares without adding back the gains from dividends, they might end up paying double taxes. It is better to speak to a financial consultant and tax experts before investing in funds and shares and learn about the process. It will ensure the individual is not paying any extra taxes and can apply for reinvested dividends tax deductions properly.

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