Are you missing out on lowering your federal tax bill? No matter what your tax bracket, you will pay more than necessary if you don’t take advantage of all the tax breaks for which you qualify. The Pennsylvania Institute of Certified Public Accountants reveals some commonly overlooked deductions that could save you money.
State Sales Tax
Taxpayers who file an IRS Form 1040 and itemize deductions on Schedule A are allowed to deduct either their state and local income taxes or their state and local sales taxes, but not both. There are seven states with no income tax. It may make sense to deduct your state and local sales taxes instead of your state and local income taxes if your state has a low income tax rate or if you made a substantial purchase during the tax year, such as a car or boat. The state sales tax deduction became permanent in December 2015 through the Protecting Americans from Tax Hikes Act.
Support for a parent
You may know that you can claim your children as dependents, as long as they are either under 19 (or under 24 and a student) or any age if they are permanently and totally disabled. But were you aware that families who offer financial support to aging parents may be able to claim them as dependents? You must meet certain requirements to qualify. They generally include, among other things, that your parent’s gross income for the year can’t be higher than the IRS exemption amount, that you provided more than half of your parent’s support for the year, and that your parent is not being claimed as a dependent on someone else’s return. Tax-exempt income, such as Social Security, is not included in determining the dependency exemption for your parents if they fit in any of the previously mentioned categories. Your CPA can further explain all the relevant rules.