11 Most Overlooked Tax Deductions

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Cassandra Hubbart, AOL

Get Your Share of the $1 Trillion

The most recent numbers show that about 46 million of us itemized deductions on our 1040s -- claiming nearly 1 trillion dollars' worth of deductions. That's right: $1,000,000,000,000. Another 85 million taxpayers claimed more than half a trillion dollars' worth of standard deductions. Some of those who took the easy way out probably shortchanged themselves.

It's all too easy to miss a trick and pay too much. Click through our gallery to see Kiplinger's list of the most overlooked deductions.

First Up: Overlooked Deduction No. 1

State Sales 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 deduction is a better deal. IRS has tables that show how much you can deduct, by state. But, if you purchased a vehicle, boat, airplane or home building materials, you get to add the state sales tax you paid to the amount shown in IRS tables, to the extent the sales tax rate you paid doesn't exceed the state's general sales tax rate.
Next: Overlooked Deduction No. 3

Reinvested Dividends

This isn't really a deduction, but it is a subtraction that can save you a lot of money. This is the break former IRS Commissioner Fred Goldberg told Kiplinger's that lots 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.

Next: Overlooked Deduction No. 4

Out-of-pocket Charitable Contributions

It's hard to overlook the big charitable gifts you made during the year by check or payroll deduction. But the little things add up, too, and you can write off out-of-pocket costs you incur while doing good deeds. Ingredients for casseroles you regularly prepare for a nonprofit organization's soup kitchen, for example, or the cost of stamps you buy for your school's fundraiser count as a charitable contribution. If you drove your car for charity in 2008, remember to deduct 14 cents per mile.

Next: Overlooked Deduction No. 2

Student Loan Interest Paid by Mom and Dad

Until recently, if parents paid back a student loan incurred by their children, no one got a tax break. To get a deduction, the law held that you had to be both liable for the debt and actually pay it yourself. But now there's an exception. If Mom and Dad pay back the loan, the IRS treats it as though they gave the money to their child, who then paid the debt. So a child who's not claimed as a dependent can qualify to deduct up to $2,500 of student loan interest paid by Mom and Dad.

Next: Overlooked Deduction No. 5

Moving Expense to Take First Job

Here's an interesting dichotomy: Job-hunting expenses incurred while looking for your first job are not deductible, but moving expenses to get to that first job are. And you get this write-off even if you don't itemize. If you moved more than 50 miles, you can deduct the cost of getting yourself and your household goods to the new area, including 19 cents per mile for moves during the first six months of 2008, and 27 cents per mile for job move-related driving after June 30 (plus parking fees and tolls) for driving your own vehicle.

Next: Overlooked Deduction No. 6

Military Reservists' Travel Expenses

If you are a member of the National Guard or military reserve, you may earn a deduction for travel expenses to drills or meetings. To qualify, you must travel more than 100 miles and be away from home overnight. If you qualify, you can deduct the cost of lodging, half the cost of your meals, 50.5 cents per mile for qualifying driving during the first six months of the year and 58.5 cents per mile for qualifying driving after June 30, plus any parking or toll fees for driving your own car. You get this deduction whether or not you itemize.

Next: Overlooked Deduction No. 7

Child Care Credit

A credit is so much better than a deduction -- it reduces your tax bill dollar for dollar. Until a few years ago, the child care credit applied to no more than $4,800 of qualifying expenses. The law allows you to run up to $5,000 of such expenses through a tax-favored reimbursement account at work. Now, however, up to $6,000 can qualify for the credit, but the old $5,000 limit still applies to reimbursement accounts.

Next: Overlooked Deduction No. 8

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. Let's say you inherited a $100,000 IRA and the fact that the $100,000 was included in your benefactor's estate added $45,000 to the estate tax bill. 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. If you withdraw $50,000 in one year, for example, you get to claim a $22,500 itemized deduction on Schedule A.

Next: Overlooked Deduction No. 9

State Tax You Paid Last Spring

Did you owe tax when you filed your 2007 state tax return in the spring of 2008? Then remember to include that amount with your state tax deduction on your 2008 return, along with state income taxes withheld from your paychecks or paid via quarterly estimated payments.

Next: Overlooked Deduction No. 10

Refinancing Points

When you buy a house, you get to deduct points paid to obtain your mortgage in one fell swoop. When you refinance a mortgage, however, you have to deduct the points over the life of the loan. That means you can deduct 1/30th of the points a year if it's a 30-year mortgage -- that's $33 a year for each $1,000 of points you paid. Doesn't seem like much, but why throw it away?

Next: Overlooked Deduction No. 11

Jury Pay Paid to Employer

Some employers continue to pay employees' full salary while they are doing their civic duty, but ask that they turn over their jury fees to the company coffers The only problem is that the IRS demands that you report those fees as taxable income. You've always had a right to deduct the amount so you weren't taxed on money that simply passed through your hands.

Use TurboTax to help ensure you don't miss any of the deductions or credits you deserve, so you get your biggest refund, guaranteed.

Next: More Tax Features

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11 Most Overlooked
Tax Deductions

The most recent numbers show that about
46 million people itemized deductions on their 1040s -- claiming nearly 1 trillion dollars' worth of deductions. Are you getting your share?

Don't overpay taxes by overlooking tax deductions. See the most common errors taxpayers make on their tax returns.