Taxpayers overlook potential deductions and credits year after year; in fact, estimates suggest that millions of taxpayers overpay their taxes every year simply by failing to take advantage of legitimate deductions and credits in the tax code. Have you overpaid your taxes?

The following tax deductions are consistently overlooked by taxpayers:

• State sales tax – this itemized deduction reported on Schedule A can be used instead of state and local income taxes; this deduction is particularly important for taxpayers who live in states without an income tax or for those who had a large purchase (e.g., auto or boat).
• Out of pocket charitable deductions – this itemized deduction reported on Schedule A can add up quickly; every time you pay for a nonprofit organization’s supplies, prepare a casserole for your church event or use your automobile for a charitable purpose, you can accumulate the receipts and mileage and claim a charitable contribution.
• Student loan interest paid by your parents – this deduction on page one of Form 1040 is available to taxpayer’s who are not dependents of their parents because the IRS treats the payment by the parents as a gift to the child and a subsequent payment by the student who is the one legally required to repay the debt.
• Job hunting expenses – this itemized deduction on Schedule A is limited to amounts in excess of 2% of adjusted gross income; transportation, travel, employment agency fees and resume costs incurred to search for a new job can be claimed.
• Moving expenses to your first job – this deduction on page one of Form 1040 is available for anyone who moves more than 50 miles from their previous home, including those graduates starting their first job.
• Estate taxes on income in respect of a decedent – this itemized deduction on Schedule A allows for a deduction of the estate taxes paid by an estate for income you receive (e.g., if you inherit a $100,000 IRA that resulted in a 35,000 estate tax, you can claim a $.35 deduction for every $1 distributed from the IRA to you).
• State taxes paid on prior year return – this itemized deduction on Schedule A can be claimed as part of the state and local income tax deduction in the year it was actually paid to the state.
• Refinancing points – the cost of this itemized deduction on Schedule A is deducted evenly over the life of the refinanced loan or when the loan in paid in full.

In addition, taxpayers consistently overlook the following tax credits:

• American Opportunity Credit – this credit is good for all four years of college with a maximum credit of $2,500 per student.
• Energy-saving home improvements – this credit is good for qualifying energy savers such as new windows, insulation and heating and cooling equipment.

Don’t pay too much on your next tax return. Contact Flexible Accounting Services of the Triangle today and let us help you identify all the deductions and credits you are entitled.