Preparing for 2016 Tax Deductions: Don’t miss these

Start preparing for your income taxes ahead of time and avoid the last minute rush to gather papers. Here are some deductions you don’t want to miss.

State Sales Taxes

After years of uncertainty, in 2015 Congress finally made this break “permanent.” This is particularly important to you if you live in a state that does not impose a state income tax. Congress offers itemizers the choice between deducting the state income taxes or state sales taxes they paid. You choose whichever saves you the most money. So if your state doesn’t have an income tax, the sales tax write-off is clearly the way to go.

In some cases, even filers who pay state income taxes can come out ahead with the sales tax choice. And, you don’t need a wheelbarrow full of receipts. The IRS has tables that show how much residents of various states can deduct, based on their income and state and local sales tax rates. But the tables aren’t the last word. If you purchased a vehicle, boat or airplane, you may add the sales tax you paid on that big-ticket item to the amount shown in the IRS table for your state. The IRS even has a calculator that shows how much residents of various states can deduct, based on their income and state and local sales tax rates.

We put those quotations marks around permanent above because, as Congress takes up tax reform in 2017, one possibility is the elimination of both the sales tax and the state income tax deductions. But you’re still sure to have the choice for your 2016 return.

1. Reinvested Dividends
   1. This isn’t a tax deduction, but it is an important subtraction that can save you a bundle. And this is the one that former IRS commissioner Fred Goldberg told Kiplinger millions of taxpayers miss . . . costing them millions in overpaid taxes.
   2. If, like most investors, you have mutual fund dividends automatically reinvested to buy extra shares, remember that each new purchase 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 reinvested dividends in your basis results in double taxation of the dividends—once in the year when they were paid out and immediately reinvested and later when they’re included in the proceeds of the sale.
   3. Don’t make that costly mistake.
   4. If you’re not sure what your basis is, ask the fund for help. Funds often report to investors the tax basis of shares redeemed during the year. In fact, for the sale of shares purchased in 2012 and later years, funds must report the basis to investors and to the IRS.
2.  Out-of-Pocket Charitable Deductions
   1. It’s hard to overlook the big charitable gifts you made during the year, by check or payroll deduction (check your December pay stub).
   2. But little things add up, too, and you can write off out-of-pocket costs incurred while doing work for a charity. For example, ingredients for casseroles you prepare for a nonprofit organization’s soup kitchen and stamps you buy for a school’s fund-raising mailing count as charitable contributions. Keep your receipts. If your contribution totals more than $250, you’ll also need an acknowledgement from the charity documenting the support you provided. If you drove your car for charity in 2016, remember to deduct 14 cents per mile, plus parking and tolls paid, in your philanthropic journeys.
3. Student-Loan Interest Paid by Mom and Dad
4. Job-Hunting Costs
5. Moving Expenses to Take Your First Job
6. Military Reservists’ Travel Expenses
7. Deduction of Medicare Premiums for the Self-Employed
8. Child-Care Credit
9. Estate Tax on Income in Respect of a Decedent
10. State Tax Paid Last Spring
11. Refinancing Points
12. Jury Pay Paid to Employer
13. American Opportunity Credit
14. Those Blasted Baggage Fees
15. Credits for Energy-Saving Home Improvements
16. Bonus Depreciation … And Beefed-Up Expensing
17. Social Security Taxes You Pay
18. Waiver of Penalty for the Newly Retired
19. Amortizing Bond Premiums
20. Legal Fees Paid to Secure Alimony
21. Don’t Unnecessarily Report a State Income Tax Refund

Visit Kiplinger.com for more details and original article posted here.

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