As the end of 2021 approaches and celebrations all over Hampton Roads are being planned for New Years, there’s another big season approaching that most people do not look forward to: tax season. When January 1 hits you will inevitably receive W2s, giving statements, and a whole host of other financial documents as you begin to think about preparing taxes.
Many of us cross our fingers and hope for the biggest refund possible, but just a few minutes of research before filing your taxes might turn into a big benefit. Of course, hiring a tax professional to file for you or provide assistance along the way, but many of us use TurboTax or other software to handle it ourselves. While tax laws change every year, here are five of the most overlooked tax deductions, according to this article:
- Dividends that get reinvested.
Unless your mutual fund is in a tax-deferred account (like an IRA), the money you make on dividends or capital gains distributions is taxable. However, you can instead reinvest these earnings into your mutual funds rather than take the income and the tax hit.
Make sure to do this with the guidance of a professional. According to the IRS, “if you fail to add the reinvested amounts back into the investment’s cost basis, it can result in double taxation of those dividends.” So seek guidance when choosing this route!
- Charitable donations and giving.
If you tithe to a church or give to a nonprofit, the donations can become a tax write-off. Even donating goods or using your car for charitable purposes can count as a donation! Make sure to save receipts for any donation valued over $250 for additional proof.
- State taxes.
If you owed taxes to the state the previous year, the good news is that you can deduct the money paid off your current year taxes! Again, keep track of everything you paid so the amount you deduct is accurate.
- Medicare premiums.
The self-employed have something to celebrate: provided you are not covered by an employer or your spouse’s plan, you can deduct certain Medicare premiums, even if you choose not to itemize your deductions. Make sure to check the tax code for the most up-to-date list of deductible payments in this category.
- Certain estate taxes and income.
If you have received a certain type of inheritance (eg. an IRA or pension), you can “deduct any estate tax paid by the IRA owner from the taxes due on the withdrawals you take from the inherited account.” (FMG Suite) While this is a more nuanced and complicated deduction, it is something to pay attention to, and ask your tax advisor or professional about when you go to file.
As you prepare your taxes or hire someone to help you along the way, don’t forget about these important but often-forgotten deductions. They could make a big difference in the amount you owe or are owed after tax season ends!