Cut your tax bill to the bone by claiming all the breaks you deserve — including some you may have forgotten, and some you may have never even known about.
State Sales Tax
Although all taxpayers have a shot at this write-off, it makes sense primarily for those who live in states that don’t 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 is a bigger burden than the sales tax, so the income-tax deduction is a better deal. Big ticket items could make the sales-tax deduction a better deal even if you live in a state with an income tax. The IRS has a calculator on its Web site to help you figure the deduction.
This isn’t really a tax deduction, but it is an important subtraction that can save you a bundle. And this is the break former IRS Commissioner Fred Goldberg told Kiplinger’s that a lot of 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 taxable capital gain (or increases the tax-saving loss) when you redeem shares. Forgetting to include the reinvested dividends in your basis results in double taxation of the dividends.
For example, ingredients for casseroles you prepare for a nonprofit organization’s soup kitchen and stamps you buy for your school’s fundraising mailing count as charitable contributions. Keep your receipts; if your contribution totals more than $250, you’ll need an acknowledgement from the charity documenting the services you contributed.
This is a great start. It’s the start of a new year. Get and keep your financial house in order.