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

Jan 17, 2020

The Setting Every Community Up for Retirement Enhancement (SECURE) Act is now law. With it, comes some of the biggest changes to retirement savings law in recent years. While the new rules don’t appear to amount to a massive upheaval, the SECURE Act will require a change in strategy for many Americans. For others, it … Continue reading “The Secure Act”

Jan 15, 2020

For most, creating an estate strategy is important to make sure your loved ones are taken care of after you’re gone. But it may be just as important to have an estate strategy for your business. Whether you’re a sole proprietor who will be passing on your business to your heirs or your business partners … Continue reading “Buy Sell Agreements for Businesses”

Jan 13, 2020

Financially, many of us associate April with taxes – but we should also associate April with important IRA deadlines. April 1, 2020 is the deadline to take your Required Minimum Distribution (RMD) from certain individual retirement accounts. April 15, 2020 is the deadline for making annual contributions to a traditional IRA, Roth IRA, and certain … Continue reading “2019 IRA Deadlines Are Approaching”

Jan 10, 2020

  You may have seen this statistic before or one resembling it: the average 65-year-old retiring couple can now expect to pay more than $250,000 in healthcare costs during the rest of their lives. In fact, Fidelity Investments now projects this cost at $285,000. The effort to prepare for these potential expenses is changing the … Continue reading “Healthcare Costs are Cutting into Retirement Preparations”

Jan 8, 2020

If you ever have the inkling to manage your investments on your own, that inkling is worth reconsidering. Do-it-yourself investment management can be a bad idea for the retail investor for myriad reasons. Getting caught up in the moment.When you are watching your investments day to day, you can lose a sense of historical perspective. … Continue reading “Why DIY Investment Management Is Such a Risk”

Insights + Resources >