OVERVIEW

Don’t overpay taxes by overlooking these deductions. Check out the 10 deductions that taxpayers most commonly overlook on their tax returns and keep more money in your pocket.

Get your share of more than $1 trillion dollars in tax deductions.
According to the most recent numbers, more than 45 million people itemized deductions on their 1040 forms and claimed $1.2 trillion worth of tax deductions. That’s right: $1,200,000,000,000,000. That same year, the corresponding standard deduction amount claimed by taxpayers was $747 billion. It’s likely that some of those who took the easy route were self-deluded. (If you turned 65 in 2020, remember that you deserve a larger standard deduction than your younger colleagues.)

Here are the 10 most overlooked tax deductions. Claim them if they apply to you and keep more money in your pocket.

1. State sales tax
   This deduction makes sense primarily for those who live in states that do not impose an income tax. Such as Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington and Wyoming. This is influential for the following reason. You have to choose between deducting state and local income taxes or state and local sales taxes. For most citizens of income tax states, generally, the income tax deduction offers a better option.

For those who live in a state with no state income tax, there are two ways to claim the sales tax deduction on your tax return. First, you can use the tables provided by the IRS to determine how much you can deduct. In addition, if you purchased a vehicle, boat or airplane, you need to add the state sales tax you paid to the amount shown in the IRS tables for your state, to the extent that the sales tax rate you paid does not exceed the general state sales tax rate. Or second, you can keep records of how much sales tax you paid during the year and claim that amount.

The best way to find out what you can deduct is to use the IRS Sales Tax Calculator. Keep in mind that the total amount of state and local taxes you can claim as itemized deductions is limited to $10,000 per year.

2. Reinvested dividends
   This isn’t really a tax deduction, it’s an adjustment that can save you a lot of money. And it’s something that many taxpayers overlook. If, like most investors, you have mutual fund dividends that are automatically invested in more stocks, remember that each reinvestment increases your «tax basis» in the mutual or stock fund. In turn, that reduces the amount of taxable capital gain (or increases the tax-saving loss) when you sell your shares.

If you forget to include reinvested dividends in your cost basis, which is subtracted from the gain on the sale to determine your profit, you’ll be overpaying taxes. TurboTax Premier and Home & Business tax preparation solutions include an extremely useful tool, the cost basis lookup, which calculates what your basis is (so you don’t have to) and makes sure you get credit for every penny of reinvested dividends.

3. Extraordinary charitable contributions
   It’s hard to overlook the significant charitable donations you made during the year by check or payroll deduction. But the small contributions you make also add up, and you can deduct them from the extra costs you incur while doing a good deed. The ingredients you regularly cook with at a qualified nonprofit’s soup kitchen, for example, or the cost of the stamps you buy for your school fundraiser count as a charitable contribution. If you drove your car for charity in 2020, remember to deduct 14 cents per mile.

4. Interest paid on your or someone else’s student loans.
   In the past, if a student’s student loan was repaid by a parent or another person, neither was granted a tax exemption. To get a deduction, the law stated that both had to be responsible for repayment of the debt and actually pay it themselves. But now there is an exception. You may know that you could be eligible to take a deduction, but even if someone else pays back the loan, the IRS considers that person to have given the money to you and that you then paid the debt. Therefore, a student not claimed as a dependent may qualify to deduct up to $2,500 of interest on student loans paid by you or someone else.

5. Moving expenses to take a first job
   Here’s an interesting irony: Job search expenses incurred during the process of looking for your first job are not deductible, but moving expenses to go to that first job are. And you get this deduction even if you don’t opt for the itemized method. If you moved more than 50 miles, you can deduct 23 cents per mile of the cost of moving you and your household goods to the new area (plus tolls and parking fees) for driving your own vehicle. However, starting in 2018, moving expenses are no longer deductible for federal taxes unless you serve on active duty in the Armed Forces and the move is due to military orders. Some states, such as California, continue to provide this tax benefit.

But there is an exception to this new federal law. There is still one group of taxpayers who can still claim their moving expenses from the IRS. Who are they? Military personnel. If you are an active duty member of the military who is being relocated, you can still deduct these expenses, if you do not receive any reimbursement from the government for the move.

Also, as long as the move is permanent, and is due to a military-ordered relocation, you don’t have to pay taxes on qualified reimbursements for moving expenses. So start getting those receipts now, because you can claim your and your family’s travel and lodging expenses, the cost of moving your household belongings, and the cost of moving your vehicles and pets! This is good news for these men and women, to whom we are grateful as they bravely serve our country.

In honor of our nation’s military personnel, all active duty and reserve military personnel can file their federal and state taxes through TurboTax Online using the TurboTax Military Discount. The #1 selling tax preparation software. TurboTax easily works with military-related tax situations, including:

Military and civilian income-including payments received while serving in a combat zone, BAS (basic allowance for subsistence) and BAH (basic allowance for housing).
Military expenses-TurboTax will find all the deductions you deserve.
Completed PCS (permanent change of station)-TurboTax will determine your residency status.
Just start preparing your tax return on TurboTax Online and use your military W-2 to verify your rank, and the savings will be applied when you file your return. You can get started today for free.