11 Ways You Might Overpay on Income Tax

Do you want to overpay on your income tax?

If you are like most people you want and need to save as much money as possible, especially in today’s economy. Overpayment is a common problem, even the IRS admits it! A computerized software program like TurboTax can help you save money as it runs you through it’s cost-savings program. Let’s look at some of the more common mistakes people make on their income tax forms:

State Sales Tax

State income tax or state sales tax can be taken as a deduction, but not both. Income tax is usually the best deal, however, if you live in a state that does not have income tax you can save by claiming money spent on cars, boats, and even building materials. Check to see if and how much you can take as a deduction.

Reinvested Dividends

If you are invested in the stock market, whether individual stocks or a mutual fund and you or your manager automatically reinvest dividends back into stock, you are increasing your “tax basis” in the fund. That, in turn, reduces the taxable capital gain (or increases the tax-saving loss) when you redeem shares.

You may be overpaying. TurboTax has a chart that can help you make the best cost-savings decisions about this.

Moving Expenses

Relocation expenses for your first job are a legitimate deduction, if you need to move more than fifty miles. You can deduct the expenses of the moving van and other expenses , such as parking fees and toll road expenses, in the move. You can take twenty cents a mile for driving your car to the new location, as well.

Interest on Student Loans

If you are a student whose parent’s are paying interest on your student loan, you can take up to $2,500 of that as a deduction. The IRS treats it like the parent’s gave you the money and you paid it off. To qualify you must not be claimed as a dependent by your parents.

Out of Pocket Charitable Deductions

Don’t overlook the out of pocket donation you made, such as costs of preparing food taken to a fundraiser, or stamps for a mailing you did. The costs of a ticket to a fundraising event, the value of clothing and household items you donated to a charitable organization, and payroll deductions are also eligible.

Child Care Credit

A credit is even better than a deduction, it reduces your tax bill dollar for dollar. The IRS allows up to $5,000 taken through a qualified reimbursement plan established at your place of work. But if you have expenses greater than the $5,000 you can claim up to a total of $6,000. That would be $5,000 through your reimbursement plan at work, plus up to an extra $1,000 out of pocket expenses.

State Tax from the Previous Year

If you owed extra state tax last year at income tax time, you can add that amount to the withheld amount you paid this year. This is true if you make estimated quarterly payments as well.

Estate tax on Income in Respect of a Decedent.

Taxes paid on an inherited IRA account that qualifies for federal estate tax may be eligible to be considered as a deduction. You get a deduction for the amount of estate tax that was paid. As you withdraw the money from the IRA and pay tax on it, you also get to deduct a proportional amount of the estate tax paid on the IRA balance.

Military Reservist Travel Expense

The cost of driving yourself (48.5 cents a mile),parking and toll fees, lodging, and half of meal expenses can be taken as a deduction, when you attend drills or meetings. To qualify you must have to travel more than 100 miles. This deduction can be taken even if you do not itemize.

Refinancing Points

Points paid to refinance a mortgage may qualify to be taken as a deduction over the lifetime of the loan. 1/15^th a year if it is a fifteen year loan, 1/30^th if it is a thirty year loan. When you sell or refinance (if not with the same lender) you may be able to deduct all of the points not yet deducted. If you refinance with the same lender, then you can the leftover points from the previous refinancing to the new points and deduct that expense over the life of the new loan as allowed.

Jury Pay Paid to Your Employer

If your employer continues to pay your salary while you have jury duty and asks you to “turnover” your jury duty pay, then you can take the deduction on the amount of the jury pay.

Every year people make common mistakes that result in overpayment of taxes. You don’t want to be one of them. Forty five million people took itemized deductions recently, claiming nearly one trillion dollars in deductions.

Using a computerized tax preparation program can help you make sure that you claim every deduction that you are allowed. A program like TurboTax will help you keep your money legitimately in your hands, not the governments.