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7 Most Overlooked Tax Deductions

Author: Christopher Smith

Wasting a tax deduction costs you money, so don't do it by failing to take every write-off you're entitled to. Here are seven tax breaks that are all too easy to overlook:

1. Capital loss carryovers

If you had a pre-2015 capital loss from the sale of an investment (getting rid of a bad stock pick, for instance) that you weren't able to use, you have a capital loss carryover. Don't forget to use it this year (look over last year's return to find the amount of your carryover). You can use the carryover to offset any capital gains this year (including capital gain distributions from mutual funds). If the carryover is greater than your capital gains this year or you had no gains, you can use up to $3,000 to offset ordinary income (salary, bank interest). If any part of the carryover remains, it can again be carried forward to 2016. Rules for capital loss carryovers are explained in IRS Publication 550.

2. Medical expenses you pay for a parent

If you're helping to support an elderly parent but can't claim him/her as a dependent because the parent has gross income over $4,000 in 2015, you may still benefit tax-wise from medical costs you pay on your parent's behalf. As long as you provide more than half your parent's support, you can add medical costs you pay for your parent with your own out-of-pocket medical costs when itemizing your medical expenses. Remember, only medical costs in excess of 10% of your adjusted gross income (7.5% of adjusted gross income if you're age 65 or older) are deductible. Deductible medical expenses are explained in IRS Publication 502.

3. Out-of-pocket expenses for charity

If you pay for supplies or other items for a charity (e.g., you care temporarily for a rescue animal in your home, paying for pet food and other supplies), you can deduct these costs when itemizing. The cost of driving your car (e.g., delivering meals on wheels) is deductible at the rate of 14 cents per mile. Be sure to keep records and, if expenses are $250 or more, obtain a written acknowledgment from the charity about your activities. All the rules you need for substantiating out-of-pocket costs for charity are in IRS Publication 1771.

4. Prior year state and local taxes paid in the current year

If you paid outstanding state income taxes when you filed your 2014 state income tax return in 2015, your payment is deductible on your 2015 federal income tax return (as long as you itemize and don't opt to deduct state and local sales taxes instead). Also, if you prepaid your 2016 property taxes or made the final state income tax estimated payment for 2015 due in January 2016 before the end of 2015, you can also deduct them on your 2015 return.

5. Car expenses

While you may not be able to deduct the cost of operating your vehicle, some deductible car-related expenses can be easily overlooked. As long as you itemize, you can deduct any ad valorem taxes you paid (not all states impose them). These are taxes based on the value of your car. If you buy special license plates designed to help charitable causes, while the IRS hasn't ruled on this matter, it's likely that you can deduct the excess cost over what you would have paid for a basic plate as a charitable contribution.

6. Educator expenses

If you're teacher, coach, guidance counselor or principal in grades K–12, your out-of-pocket costs for your students are deductible up to $250, whether or not you itemize. If your expenses are greater, amounts over $250 can be treated as unreimbursed employee business expenses, which are deductible as miscellaneous itemized deductions (to the extent they exceed 2% of adjusted gross income).

7. Jury duty pay turned over to your employer

Being called for jury duty may have no impact on your job compensation if your employer pays you the same while you perform your civic duty. Typically, when this is done you have to remit any compensation you receive from the court to your employer. While jury duty pay is taxable, you can claim a deduction for the amount you turn over to your employer. You don't have to itemize to get this tax break.

The Bottom Line

These easily overlooked deductions are just a taste of the write-off opportunities at your disposal. For example, don't forget to deduct tax preparation costs for 2014 returns that you paid in 2015 (software, preparer fees, tax books). And keep a record of costs you pay in 2016 for your 2015 taxes so you'll remember to deduct them when you file your 2016 return in 2017. Take the time to review carefully your deduction options so you don't pay any more in taxes than required.

(For more on preparing your tax return for 2015, see Last-Minute Tax Deduction Moves – Until April 15, Top 10 Tax Filing Mistakes – And How To Avoid Them, Tax Preparer Or Software: How To Choose and H&R Block Vs. TurboTax Vs. Jackson Hewitt.)

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