Found a list of the most-overlooked tax deductions on Kipplinger and pulled some of the ones that you are most likely to encounter. Hope it helps.
Break on the Sale of Demutualized Stock
In 2013, the IRS finally found a court that agrees with its tough stand on the issue of demutualized stock. That's stock that a life insurance policyholder receives when the insurer switches from being a mutual company owned by policyholders to a stock company owned by shareholders. The IRS's longstanding position is that such stock has no tax basis, so that when the shares are sold, the taxpayer owes tax on 100% of the proceeds of the sale. In 2009 and again in 2011, federal courts sided with taxpayers who challenged the IRS position. Shortly after the IRS won its case in early 2013, the court in one of the earlier cases came up with a complicated method to pinpoint a basis. Rather than agreeing with experts who say the basis should be 100% of the stock’s value at the time of the demutualization, the court’s method set the basis in the case at hand at between 50% and 60% of the stock’s value when the taxpayers received it. Sooner or later, the Supreme Court may have to settle things.
In the meantime, if stock was sold in 2014 that was received in a demutualization, there are a couple of choices. Claim a basis and, if the IRS rejects your position, file an appeal. Or use a zero basis, pay the tax on the full proceeds of the sale and then file a "protective refund claim" to maintain your right to a refund if the matter is eventually settled in your favor.
State Sales Taxes
You may hear that this tax break expired . . . which it does regularly, only to be just as regularly revived by Congress.
That’s exactly what happened for purposes of 2014 returns. The break expired at the end of 2013 and then was revived retroactively in December 2014 to cover 2014 returns. And then it died again on December 31. Right now, we don’t know what the rule will before 2015. But for 2014 returns, the state sales tax deduction option is alive and well. 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 paid. Choose whichever gives the largest deduction. 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. 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.
This isn't a tax deduction, but it is an important subtraction that can save a bundle. Missing this break costs millions of taxpayers a lot in overpaid taxes.
If mutual fund dividends are automatically used to buy extra shares, remember that each reinvestment increases the tax basis in the fund. That, in turn, reduces the taxable capital gain (or increases the tax-saving loss) when shares are redeemed. Forgetting to include reinvested dividends in the 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.
Funds often report to investors the tax basis of shares redeemed during the year. For the sale of shares purchased in 2012 and later years, funds must report the basis to investors and to the IRS.
Student Loan Interest Paid by Mom and Dad
Generally, you can deduct interest only if you are legally required to repay the debt. But if parents pay back a child's student loans, the IRS treats the transactions as if the money were given to the child, who then paid the debt. So as long as the child is no longer claimed as a dependent, he or she can deduct up to $2,500 of student-loan interest paid by Mom and Dad each year. And he or she doesn't have to itemize to use this money-saver. (Mom and Dad can't claim the interest deduction even though they actually foot the bill because they are not liable for the debt.)
Job Hunting Costs
If you're among the millions of unemployed Americans who were looking for a job in 2014, we hope you were successful . . . and that you kept track of your job-search expenses or can reconstruct them. If you were looking for a position in the same line of work as your current or most recent job, you can deduct job-hunting costs as miscellaneous expenses if you itemize. Qualifying expenses can be written off even if you didn't land a new job. But such expenses can be deducted only to the extent that your total miscellaneous expenses exceed 2% of your adjusted gross income. (Job-hunting expenses incurred while looking for your first job don't qualify.) Deductible costs include, but aren't limited to:
- Transportation expenses incurred as part of the job search, including 56 cents a mile for driving your own car plus parking and tolls.
- Food and lodging expenses if your search takes you away from home overnight
- Cab fares
- Employment agency fees
- Costs of printing resumes, business cards, postage, and advertising.
Military Reservists’ Travel Expenses
Members of the National Guard or military reserve may write off the cost of travel to drills or meetings. To qualify, you must travel more than 100 miles from home and be away from home overnight. If you qualify, you can deduct the cost of lodging and half the cost of your meals, plus an allowance for driving your own car to get to and from drills.
For 2014 travel, the rate is 56 cents a mile, plus what you paid for parking fees and tolls. You may claim this deduction even if you use the standard deduction rather than itemizing.
Estate Tax on Income in Respect of a Decedent
This sounds complicated, but it can save you a lot of money if you inherited an IRA from someone whose estate was big enough to be subject to the federal estate tax.
Basically, you get an income-tax deduction for the amount of estate tax paid on the IRA assets you received. Let's say you inherited a $100,000 IRA, and the fact that the money was included in your benefactor's estate added $40,000 to the estate-tax bill. You get to deduct that $40,000 on your tax returns as you withdraw the money from the IRA. If you withdraw $50,000 in one year, for example, you get to claim a $20,000 itemized deduction on Schedule A. That would save you $5,600 in the 28% bracket.
Airlines seem to revel in driving travelers batty with extra fees for baggage, online booking and for changing travel plans. Such fees add up to billions of dollars each year. If you get burned, maybe Uncle Sam will help ease the pain. If you're self-employed and travelling on business, be sure to add those costs to your deductible travel expenses.
Bonus Depreciation & Increased Expensing
Business owners—including those who run businesses out of their homes—have to stay on their toes to capture tax breaks for buying new equipment. The rules seem to be constantly shifting as Congress writes incentives into the law and then allows them to expire or to be cut back to save money. Take “bonus depreciation” as an example. Back in 2011, rather than write off the cost of new equipment over many years, a business could use 100% bonus depreciation to deduct the full cost in the year the equipment was put into service.
For 2013, the bonus depreciate rate was 50%. The break expired at the end of 2013 and stayed expired until the end of 2014 . . . when Congress reinstated it retroactively to cover 2014 purchases. (That reprieve ended on December 31, when the provision expired again . . . but it does apply to 2014 returns.)
Perhaps even more valuable, though, is another break: supercharged "expensing," which basically lets you write off the full cost of qualifying assets in the year you put them into service. This break, too, comes and goes. But as part of last-minute 2014 tax legislation, for 2014 purchases, it applies to up to $500,000 worth of assets. The $500,000 cap phases out dollar for dollar for firms that put more than $2 million worth of assets into service in 2014. For now, the limit for purchases made in 2015 is just $25,000 and it phases out once more than $200,000 of assets are placed in service. (There’s a good chance Congress will sweeten this break, again, before 2015 returns are due in 2016.)