Who among us wants to pay the IRS more taxes than we have to? Most people don’t, but Americans regularly overpay because they fail to take tax deductions for which they are eligible. Let’s take a quick look at the four 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 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 reinvested amounts back into the investment’s cost basis, it can result in double taxation of those dividends.
- Out-of-Pocket Charity: It’s not just cash donations that are deductible. If 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.
- State Taxes: Did you owe state taxes when you filed 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 placed a $10,000 cap on the state and local tax deduction.
- 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 Plan. This deduction is available regardless of whether you itemize deductions or not.
In order to make sure you are minimizing your tax liability, work with your tax preparer. If you would like a review of your total financial portfolio, call us for a complimentary consultation.