Insights + Resources

Six Most Overlooked Tax Deductions

Feb 26, 2024

Who among us wants to pay the Internal Revenue Service more taxes than we have to? While few may raise their hands to voluntarily pay more taxes, Americans regularly overpay because they fail to take tax deductions for which they are eligible. Are you one of them? Let’s take a quick look at the six most overlooked opportunities to manage your tax bill.

Reinvested Dividends

When your mutual fund pays you a dividend or capital gains distribution, that income is a taxable event (unless the fund is held in a tax-deferred account, like an IRA). If you’re like most fund owners, you’ll reinvest these payments in additional shares of the fund. The tax trap lurks when you sell your mutual fund. If you fail to add the additional investment amounts back into the investment’s cost basis, it can result in double taxation of those dividends.^1,2

Self-Employment Taxes

If you are a sole proprietor, you can claim 50% of what you pay in self-employment tax, as an income tax deduction. This only makes sense, since you are actually paying both the employee and employer share of Social Security and Medicare taxes at your business.³

Out-of-Pocket Charity

It’s not just cash donations that are deductible. Any time you donate goods or use your personal car for charitable work, these are potential tax deductions. Just be sure to get a receipt for any amount over $250.⁴

State Taxes

Did you owe state taxes on your previous year’s tax returns? If you did, don’t forget to include this payment as a tax deduction on your current year’s tax return. The Tax Cuts and Jobs Act of 2017 limits state and local tax deductions at $10,000 cap.⁴

Medicare Premiums

If you are self-employed (and not covered by an employer plan or your spouse’s plan), you may be eligible to deduct premiums paid for Medicare Parts B and D, Medigap insurance, and Medicare Advantage plans. This deduction is available regardless of whether you itemize deductions.⁴

Income in Respect of a Decedent

If you inherit an IRA or pension, you may be able to deduct any estate tax paid by the IRA owner from the taxes due on the withdrawals you take from the account. Be sure to check with a tax professional on your specific situation.

The information in this material is not intended as tax or legal advice. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation.

Mutual funds are sold only by prospectus. Please consider the charges, risks, expenses, and investment objectives carefully before investing. A prospectus containing this and other information about the investment company can be obtained from your Charlotte NC financial professional. Read it carefully before you invest or send money.

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Citations.
1 - thebalance.com/how-to-avoid-the-double-taxation-of-mutual-funds-2466698 [8/19/18]
2 - kiplinger.com/article/taxes/T055-C032-S014-tax-rules-on-10-retirement-accounts-or-investments.html [3/21/18]
3 - turbotax.intuit.com/tax-tips/self-employment-taxes/the-self-employment-tax/L8xXjolB4 [12/13/18]
4 - kiplinger.com/slideshow/taxes/T054-S001-most-overlooked-tax-deductions-2018/index.html [11/20/18]
5 - investopedia.com/terms/i/income_respectof_decedent.asp [1/30/18]

Tags: Financial Planning, Tax Deductions