Commonly missed tax deductions
Sales tax is one of the commonly missed deductions.
A sales tax deduction is allowed for states that don’t impose an income tax. The states without an income tax include Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, and Wyoming.
There are two ways to claim the state sales tax deduction on your return.
You can keep your receipts and deduct all the sales tax you paid throughout the year.
The easiest option for claiming the sales tax deduction is to use the IRS’s Sales Tax Calculator. Additionally, you can deduct any sales tax paid for a car, motorcycle, boat, motor home, or airplane. If you use the vehicle for your business, the sales tax can’t be deducted on Schedule A. Sales tax on building materials can also be deducted.
If you are building a new house, the sales tax paid on building materials can be substantial. However, the maximum tax deduction, including property taxes, is $10,000. When building a new home, your sales tax deduction will be well over the average deduction if you claim your sales tax.
Relatively large numbers on a tax return can cause an audit. If you claim the sales tax when building your home, it’s essential to keep all your receipts. In the event of an audit, you will need to provide copies of the receipts. Receipts often fade over time, so it’s good to make copies of the receipts before they fade and become illegible.
Out of pocket charitable contributions are another commonly missed deduction. It’s easy to remember the large charitable gifts that you made throughout the year. However, the little things add up and can make a difference in your return. The cost of any office supplies and postage used for a nonprofit organization is deductible. The ingredients for food that you prepare for nonprofit organizations are also deductible. If you drove your car for charity, the mileage is deductible.
The Earned Income Tax Credit (EITC) is available to millions of people. However, according to the IRS, 25% of eligible people fail to claim it. Tens of millions of individuals and families qualify for the credit who are considered middle class. The new 2021 tax law enables many more individuals to claim the credit. Previously only childless individuals between the ages of 25 and 64 were eligible for EITC. The age limits for people without children have been changed to include people over 18. Consequently, many senior citizens will be eligible for the EITC.
If you have already filed your return, you can amend your return to claim the missed deductions.
David Zubler is a tax accountant and Enrolled Agent representing clients before the IRS with over 25 years of tax experience. He is the author of four tax books and is the founder and president of Your Tax Care. The company provides business and tax education to the public at its website, YourTaxCare.com. David can also be contacted by email at firstname.lastname@example.org