SALES TAX CALCULATOR

Most Overlooked Tax Deductions

Here are our 10 most overlooked tax deductions. Claim them if you deserve them, and keep more money in your pocket.

1. State sales taxes

This write-off makes sense primarily for those who live in states that do not impose an income tax. You must choose between deducting state and local income taxes, or state and local sales taxes. For most citizens of income-tax states, the income tax deduction usually is a better deal. IRS has tables for residents of states with sales taxes showing how much they can deduct. But the tables aren’t the last word.

If you purchased a vehicle, boat or airplane, you get to add the state sales tax you paid to the amount shown in IRS tables for your state, to the extent the sales tax rate you paid doesn’t exceed the state’s general sales tax rate. The same goes for home building materials you purchased. These items are easy to overlook. The IRS even has a calculator to help you figure out the deduction, which varies by your state and income level.

2. Reinvested dividends

This isn’t really a tax deduction, but it is a subtraction that can save you a lot of money. And it’s one that many taxpayers miss. If, like most investors, you have mutual fund dividends automatically invested in extra shares, remember that each reinvestment increases your “tax basis” in the fund. That, in turn, reduces the amount of taxable capital gain (or increases the tax-saving loss) when you sell your shares.

Forgetting to include the reinvested dividends in your cost basis which you subtract from the proceeds of sale to determine your gain means overpaying your taxes.

3. Out-of-pocket charitable contributions

It’s hard to overlook the big charitable gifts you made during the year by check or payroll deduction. But the little things add up, too, and you can write off out-of-pocket costs you incur while doing good deeds. Ingredients for casseroles you regularly prepare for a nonprofit organization’s soup kitchen, for example, or the cost of stamps you buy for your school’s fundraiser count as a charitable contribution. If you drove your car for charity in 2017, remember to deduct 14 cents per mile.

4. Student loan interest paid by Mom and Dad

In the past, if parents paid back a student loan incurred by their children, no one got a tax break. To get a deduction, the law said that you had to be both liable for the debt and actually pay it yourself. But now there’s an exception. If Mom and Dad pay back the loan, the IRS treats it as though they gave the money to their child, who then paid the debt. So a child who’s not claimed as a dependent can qualify to deduct up to $2,500 of student loan interest paid by Mom and Dad.

5. Moving expense to take first job

Here’s an interesting dichotomy: Job-hunting expenses incurred while looking for your first job are not deductible, but moving expenses to get to that first job are. And you get this write-off even if you don’t itemize. If you moved more than 50 miles, you can deduct 23 cents per mile of the cost of getting yourself and your household goods to the new area, (plus parking fees and tolls) for driving your own vehicle.

Tax changes you need to know

Higher contribution limits for retirement savings

Employees who participate in certain retirement plans ‒ 401(k)s, 403(b)s, most 457 plans and the Thrift Savings plan – will be able to contribute as much as $18,500, a $500 increase from the current $18,000 limit.

Deductible contributions to IRAs

Savers who contribute to individual retirement accounts will have higher income ranges following cost-of-living adjustments. Note that the deduction phases out for individuals and their spouses who are covered by workplace retirement plans.

For single taxpayers, the limit will be $63,000 to $73,000.

For married couples, the phase-out range will vary depending on whether the IRA contributor is covered by a workplace retirement plan or not. When the spouse who is investing has access to an employer plan, the range is $101,000 to $121,000. For individuals who don’t have a retirement plan but are married to someone who does, the phase out has been raised to $189,000 to $199,000.

The phase-out was not adjusted for married individuals who file a separate return and who are covered by a workplace retirement plan. That range is $0 to $10,000.

Contributions to Roth IRAs

For individuals who are single or the heads of their households, the income phase-out has been raised to $120,000 to $135,000. For married couples who file jointly, the range climbs to $189,000 to $199,000.

The phase out was not adjusted for married individuals who file a separate return. That is $0 to $10,000.

Personal exemption

The personal exemption will grow by $100 to $4,150. The phase-out for this exemption begins at income of $266,700, or $320,000 for married couples who file jointly, and phases out completely at $389,200 for individuals and $442,500 for couples who file together.