Insights + Resources

Six Most Overlooked Tax Deductions

Jun 19, 2019

Tax Written on Paper
Deductions you do not want to miss

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.

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: ,

More Insights

Nov 15, 2019

Marriage changes everything, including insurance needs. Newly married couples should consider a comprehensive review of their current, individual insurance coverage to determine if any changes are in order as well as consider new insurance coverage appropriate to their new life stage. The good news is that married drivers may be eligible for lower rates than … Continue reading “Insurance When You’re Newly Married”

Nov 13, 2019

 With the children now out of the house, financial priorities become more focused on preparing for retirement. At this stage, you may very likely be at the height of your earning power and fast approaching peak savings as you lay the groundwork for retirement. During this final leg to retirement – and throughout your retirement … Continue reading “Insurance Needs for Empty Nesters and Retirees”

Nov 11, 2019

“What is your greatest retirement fear?” If you ask any group of retirees and pre-retireesthis question, “outliving my money” will likely be one of the top answers. In fact, 51% of investors surveyed for a 2019 AIG retirement study ranked outliving their money as their top anxiety. Retirees face greater “longevity risk” today. The Census Bureau … Continue reading “Reducing the Risk of Outliving Your Money”

Nov 8, 2019

For many investors, it can be tempting to think of one’s portfolio in terms of “gains” or “losses.” True, this is a central concept to understanding market behavior, but to truly maximize your investing knowledge, you also need to know about “unrealized gains,” “unrealized losses,” and how they can work to your advantage. As always, … Continue reading “Unrealized Loss and Gain”

Nov 6, 2019

As a consumer, when you purchase an expensive item, like a car or refrigerator, you expect to receive a warranty that the manufacturer will repair or replace that product if it breaks down. A warranty makes sense for big-ticket purchases, but what about for a home?

Insights + Resources >