- Days left

10 Often Overlooked Tax Deductions

Tax preparer working with a clientThis story was corrected on January 31, 2011.

In life, you can't win the game if you don't know all the rules, and paying your taxes is no different. Every tax deduction or tax credit that you miss means more money out of your pocket and into Uncle Sam's.

But our tax code is so complex -- it is 70,000 pages, after all -- that even IRS Commissioner Doug Shulman admits he hires someone to help do his taxes. So personal finance experts Ken and Daria Dolan of Dolans.com are here to make sure you don't miss out on these 10 commonly overlooked tax deductions.

We all should pay our fair share...but let's make sure you don't pay one penny more!Overlooked State Tax Deduction

If you paid any state income taxes in the Spring because you owed taxes when you filed your returns, remember to count it toward your 2010 state income tax deduction.

Here's another often-overlooked deduction relating to your state taxes -- the state sales tax deduction. The state sales tax deduction has been extended through 2011.

So you can choose whether to deduct your state and local income tax, OR your state sales tax. Most times, the state and local income tax will win out, but this is a great deduction if you live in a state that doesn't have income tax.

The easiest way to decide which deduction is right for you is to use the IRS's tax tables that show how much residents of each state can deduct.

Tax Deductions for "Going Green"

There have been so many special tax credits and deductions the last two years, it's hard to keep track. The tax credit for buying a new vehicle expired in 2009, but if you made an effort to "go green" in 2010, Uncle Sam wants to reward you by putting a few extra dollars in your pocket.

Unlike deductions against your income, these are actual tax credits, and tax credits are subtracted directly from the bottom-line tax that you owe.

You can get a tax credit of up to 30% of your cost for approved energy-efficient heating and cooling products, such as solar water heaters, geothermal heat pumps and others. There is no maximum dollar amount on this deduction.

Plus, you can get a tax credit of 30% of your cost -- up to a maximum of $1,500 -- on approved energy-saving home improvements. If you made any improvements to make your primary residence (not a second or rental home) more energy efficient, such as installing energy-efficient HVAC heating and cooling systems, replacing windows, insulating your attic, adding storm doors, etc., don't overlook this tax credit.

Important note: The $1,500 cap covers both 2009 AND 2010 combined.

Overlooked Tax Deduction for Homeowners

If you took out a first mortgage or refinanced after Jan. 1, 2007, and are paying private mortgage insurance (PMI), you can deduct that expense. Simply use Line 13 on Schedule A -- the same form that you use to deduct mortgage interest and property taxes.

Your lender should make this easy by telling you the amount of your PMI premium in Box 4 of your Form 1098.

This deduction is scheduled to disappear after 2010, so make the most of it now.

Overlooked Tax Deductions for Investors

Funny how so many investors can be so careful with how they invest their money, yet careless when it comes to deducting investment-related expenses on their taxes. Don't let that be you.

Be sure to write off any and all investment publications to which you subscribe. And don't forget other investment-relating expenses, such as your financial adviser's annual fees, mileage for visits to your broker or financial adviser, safety deposit boxes and other investment fees that you may pay directly.

Overlooked Way to Deduct Baggage Fees

If you are a business traveler, you may be able to deduct those annoying airline baggage fees. If you need to bring material or supplies on a business trip and have to check that baggage, you can deduct those fees as business expenses.

Overlooked Deductions for Volunteers

If you work with a charity, be sure you take a deduction for the miles you drive related to your charity work. For 2010, the mileage rate remains unchanged at 14 cents per mile. If this little-used tax break applies to you, take advantage of it.

Plus, don't forget your other charitable out-of-pocket expenses. For example, if you donated food to the bake sale or a soup kitchen, if you made blankets for the homeless shelter, or donated materials for your school's fund-raising campaign, they are all deductible as charitable contributions.

Tax Credit for Working Parents

Don't skip this one... it's really a tax credit and not a deduction. If you pay for child care, including day care or nanny services, you can reduce your taxes up to $3,000 for a single child or up to $6,000 for two or more children under the age of 13.

The amount of the credit ranges from 20% to 35% of your child-care costs, depending on your gross income. For example, if your income is $43,000 or more, you can claim a 20% credit on your child-care costs. So if you have one child and you spend $8,000 a year on child care, you can save 20% off the first $3,000 -- or $600.

As always, certain "rules" apply, so be sure to check with your tax adviser.

Overlooked Tax Deductions When You Sell Your Home

If you were lucky enough to sell your home last year, you have some tax deductions coming to you. You can deduct the costs associated with selling your home, including the commission you paid your real estate agent, any legal fees and closing costs.

Overlooked Deductions for College Loans

Here's a loophole that lets kids deduct student loan interest. If a parent pays back a student loan for a child who they do not claim as a dependent, then that child can deduct up to $2,500 of that student loan interest. The IRS treats the money like a gift that was used by the child to pay the debt.

Best yet, the child does not have to itemize to take this deduction.

Overlooked Deduction for Tax Prep

Our tax code is so ridiculously complex that 60% of all taxpayers hire professional help. If you are one of them, be sure that you deduct whatever you paid your tax adviser in 2010.

In fact, be sure you deduct ANY costs pertaining to tax planning. These are easy to forget because they really fall under the category of "miscellaneous" itemized expenses.

In addition to your tax preparer's fees, you can deduct portions of any legal or accounting fees related to your taxes. Meaning if you sat down with an attorney to review your estate, and you spent a part of that time reviewing the tax implications, that time would be tax deductible.

There you have it... a dozen overlooked tax deductions that many people miss. Don't you be one of them -- every deduction equals more money in your pockets.

Doing your taxes has turned into a game of "gotcha" -- and most taxpayers lose. Let us help level the playing field with simple tips for making your tax deductions airtight and by making sure you know all the new 2010 tax changes that apply to you.

Correction: This story was corrected on Monday, January 31. A previous version of this story said that taxpayers who don't itemize could increase their standard deduction by the amount of real property tax they could have claimed if they did itemize - up to $500 ($1,000 on a joint return). Under the current tax law, that is no longer allowed. We regret the error.

We have also updated the story to include a new deduction regarding student loans.

More from Dolans.com

How to Make Your Tax Deductions Airtight

8 Important Tax Changes You Need to Know

Your Rights as a Taxpayer

Increase your money and finance knowledge from home

Introduction to Preferred Shares

Learn the difference between preferred and common shares.

View Course »

Intro to different retirement accounts

What does it mean to have a 401(k)? IRA?

View Course »

TurboTax Articles

Video: Tax Guidelines About Gifting

Note: Some of the content of this video applies only to taxes prepared prior to 2012. It is included here for reference only. Find out the tax guidelines about gifting with help from TurboTax in this video on tax tips.

Video: What are Income Tax Rates?

Note: The content of this video applies only to taxes prepared for 2010. It is included here for reference only. Income tax rates change depending on both the amount of money you make and how you made it. Find out about income tax rates with help from TurboTax in this video on tax tips.

Video: How To Reduce Errors on Your Tax Return

Did you know that errors on your tax return can affect the amount of your tax bill and the amount of time it takes to get a refund? Fortunately, TurboTax helps you avoid errors AND be sure you're getting all the tax deductions and credits you deserve.

Does Your Company Need to File Form 1095-B?

A company is responsible for filing IRS Form 1095-B only if two conditions apply: It offers health coverage to its employees, and it is "self-insured." This means that the company itself pays its employees' medical bills, rather than an insurance company. A company that doesn't meet both conditions won't have to deal with Form 1095-B. Its employees might still receive a 1095-B, but from their insurer, not the employer.

Video: Who Qualifies for an Affordable Care Act Exemption (Obamacare)?

The Affordable Care Act requires all Americans to have health insurance or pay a tax penalty. But, who qualifies for an Affordable Care Act exemption? Find out more about who qualifies for an exemption from the Affordable Care Act tax penalty, how to claim an exemption on your tax return and how the Affordable Care Act may affect your taxes with this video from TurboTax.

Add a Comment

*0 / 3000 Character Maximum