Common Overlooked Deductions and Credits

This time of year, when we are putting together our annual tax filings, I start noticing some common items that are overlooked or not understood.

  • State-tax refunds for AMT taxpayers. Taxpayers often forget that state tax refunds aren’t taxable to those who owe alternative minimum tax, or AMT, for the same tax year, as long as the amount of the refund is less than the amount of state income tax disallowed under AMT.
  • Charitable donations, Donors may not deduct labor or time, but they may deduct expenses such as mileage, uniforms and even the cost of taking some underprivileged youths to sports events or movies. Board members or chosen representatives also may deduct unreimbursed expenses for attending a conference or meeting.
  • Employees who give to charities via payroll deductions at work frequently forget to include them on their personal return. The number is not on the W-2 and there’s no letter of the amount contributed.
  • Medical expenses. The disallowance equal to 7.5% of adjusted gross income is a high hurdle, but those who qualify shouldn’t overlook all possible expenses. You should also consider married filing separately in these instances, if one partner has high medical bills. This is one of the only times that filing separately can lower the total tax bill.
  • Sales-tax deduction in lieu of income taxes. This provision, which Congress has extended through 2011, allows itemized deductions for state and local sales tax instead of state and local income taxes. Taking this is a no-brainer in states without an income tax, and it may work for others if state income taxes are relatively low but a taxpayer had big-ticket purchases such as a car or boat.
  • Moving expenses. Taxpayers who moved more than 50 miles for work and stayed employed may often deduct reasonable moving expenses. No itemization is necessary.
  • Domestic Production Deduction. This generous benefit for having a qualified business in the U.S. can be claimed by sole proprietors, partnerships and corporations; it can even apply to farmers.

If any of these apply to your tax situation, please do not hesitate to contact us.

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