Sometimes Overlooked Tax Deductions

Every year many mistakes are made by US taxpayers as they file their income taxes for the year. Many of the mistakes are related to address, names, and social security numbers. But some of the mistakes are related to tax deductions. If you miss a tax deduction that you are eligible for, you could be missing out on a decent sized amount of money.

State sales tax is a deduction that is sometimes missed. For states that do not have a state income tax, deducting the sales tax is the best selection of the two options to deduct. Local sales tax is also deductible. In some rare causes, deducting sales tax is better than deducting income tax when there is income tax to deduct.

Many taxpayers fail to adjust their basis on investments when dividends are reinvested. This mutual fund mistake can cost you a lot when you claim your capital gains on investments with reinvested dividends. Make sure to step up your basis every time dividends are used to purchase more shares of a fund.

Finally, forgetting to deduct cash contributions to charities can be expensive. Make sure to track the amount of cash contributions you make during the year to authorized charitable organizations and include them with your non-cash contributions on your Schedule A. Those weekly donations for $5.00 can add up quickly and save you money at tax time.

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Many people have been troubled by the impact of the financial crisis on their savings. If you are retired, you probably know that there is an annual minimum distribution that you are required to take from your IRA if you are 70-1/2 or older, that is, you must take money out every year, or you are penalized on the funds. However, if you do not need the money to live on, you may consider it a disadvantage to have to cash something out at the moment, because you might want to leave your investments in place to recover, rather than sell them and make the paper loss into a real loss.

Although this requirement still applies to 2008 taxes, the rule has been suspended for 2009, which means that you are not penalized if you choose to leave your investments in place this year, and not take any money out. In that way, you can continue to get the tax advantages on the returns rather than being forced to sell when the markets are down.

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