Every person, whether employed or self-employed, needs to pay taxes to relevant authorities. When it comes to taxes, people always overlook some deductions, making them pay more taxes than required. Such mistakes mainly occur to self-employed individuals and few to the employed. It would help if you looked at all deductions before completing your tax deductions. What are these overlooked tax deductions? Below are five deductions that people don’t consider and can help them save money on taxes.
5 of the Most Overlooked Tax Deductions:
1. Reinvested Dividends
Reinvested dividends are overlooked tax deductions that can save you a lot of money. Reinvested dividends are always overlooked by most people, making them pay more on taxes. If you are an investor and reinvest your dividends for extra shares, you end up increasing your tax basis in the stock market. The increase in tax basis reduces the taxable gain when you put your shares for sale. By forgetting to include these reinvested dividends, you end up overpaying your taxes. It would help if you had a tool that will figure out your basis to prevent you from paying excess taxes and ensure you get credit every time you indulge in reinvested dividends.
2. State Sales Taxes
If you’re an OFW living in a tax-free state in the United States, for example, then there is a way you can claim your sales tax deduction. You can check on the government records for the tax you are liable to claim if employed or check on a self employed tax guide for those who run private businesses. Such guidelines will help you know the deductions required, for example, if you purchase assets and properties in the said states. Another way of claiming such tax deductions is by keeping all the tax payments and following up at the end of the tax period. One thing you should know is that all deductions for any state and local taxes are always limited, and you should check the limit in your state before carrying out the process.
3. Out of Pocket Contributions to Charities
Charitable donations and gifts are probably the most overlooked tax deductions. Most people never think of these as potential deductions, especially because it’s from their pocket. Charitable donations are easy to manage, mainly when made through checks or payroll deduction. The things you do for the community out of your pocket need to be taken care of when paying your taxes. Again, if you’re an OFW in the U.S, for example, and your car was used in any charitable organization, you need to deduct at least 14cts per mile as required by the law. Forgetting to remove such will result in high taxes, with no deductions, mostly when done for an extended period. Any charity done out of your own pocket must be considered in deductions to come up with the right figure when paying your taxes.
4. Earned Income Tax Credit
If you’re in the lower-income bracket in the U.S, there is a possibility that you qualify for Earned Income Tax Credit Bracket. However, according to reports, most individuals end up not claiming such credit. Some miss this credit because they aren’t aware of it while others don’t take it because of the complicated rules. EITC is a tax refund and not a deduction, so you need to check it out with your relevant authority. It happens to lower-income earners, and people who lost their jobs took a pay cut or worked for a few days in a year. Earned Income Tax Credit depends on so many things. Such factors include your family size, income, and also marital status. To get such refunds, you need to file tax returns, even if you don’t owe the government taxes. In case you forgot to claim the deductions, you have until three years to do so for any particular year.
5. Gambling Losses
This may be the most surprising of all overlooked tax deductions. Did you gamble and lose? Some countries permit the deduction of gambling losses. However, there are restrictions on this. First, you need to itemize it in your deductions, and it’s only limited to gambling winnings you reported as taxable incomes. These deductions also comprise of non-won bingo, raffle tickets, and lottery. If you plan to file for such tax deductions, you’ll need to keep your gambling receipts and any other evidence showing that you did gambling. You need to note other things as well, including the date of gambling, gambling venue, people you were with during gambling, and the total amount won and lost on that day.
If you wish to lower your tax bill, such tips matter a lot and need to be done right. Unfortunately for such, most people don’t know about them and end up paying hefty taxes without knowing. But not anymore, since this article has provided details of things you can look at and bring your taxes down. Other things which you need to check out include Child and Dependent Care Tax Credit, Paid State Tax, mortgage points, and much more.