Who among us wants to pay the IRS more taxes than we have to?
While few may raise their hands, Americans regularly overpay because they fail to take tax deductions they are eligible for. Let’s take a quick look at five overlooked opportunities to manage your tax bill.
1. 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.
Mutual funds are sold only by prospectus. Please consider the charges, risks, expenses and investment objectives carefully before investing. A prospectus containing this and other information about the investment company can be obtained from your financial professional. Read it carefully before you invest or send money.
2. Out-of-Pocket Charity and Deductions for Non-Itemizers: It’s not just cash donations that are deductible. If you donate goods or use your personal car for charitable work, these you may potentially be able to claim tax deductions. Just be sure to get a receipt for any amount over $250.
And there’s a new, temporary tax break for taxpayers who don’t itemize deductions on their tax returns. Generally, taxpayers who claim the standard deduction on their federal tax returns can’t deduct charitable donations. But thanks to the CARES Act that was enacted in 2020, single and married joint filing taxpayers can deduct up to $300 in donations to qualified charities on their 2020 federal returns, even if they claim the standard deduction. The Consolidated Appropriations Act extended this tax break for another year and increased the amount that married couples filing jointly can claim to $600 for 2021.
3. State Taxes: Did you owe state taxes at the time of filing of 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.
4. 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 whether you itemize deductions or not.
5. Income in Respect of a Decedent: If you’ve inherited an IRA or pension, you may be able to deduct any estate tax paid by the IRA owner from the taxes due on the withdrawals you take from the inherited account.
For guidance on taxes and tax deductions, contact our office at 315.424.1120 or [email protected].
ABOUT GROSSMAN ST. AMOUR CPAs PLLC
Grossman St. Amour CPAs PLLC virtual doors are open and we are assisting clients with audit, accounting, and tax issues as well as matters relating to COVID-19. As a certified public accounting firm located in central New York, Grossman St. Amour CPAs has been in business for 63 years.
Grossman St. Amour CPAs provides businesses and individuals with accounting, audit, taxation, business planning and valuation, financial planning, investment consulting, and fraud examination and deterrence services. For more information about how Grossman St. Amour CPAs PLLC can be of service to you, contact our professionals.
