You should pay all taxes due – but not a penny more! You can then help others with the excess – how you decide.
Many taxpayers regularly overpay because they fail to take tax deductions for which they are eligible. Here are some overlooked opportunities to mitigate your tax bill.
- Reinvested Dividends: When your mutual fund pays you a dividend or capital gains distribution, that income is a taxable event in a regular brokerage account (not IRA). If you’re like most fund owners, you reinvest these payments in additional shares of the fund. The issue happens when you sell your mutual fund. If you fail to add the reinvested amounts back into the investment’s cost basis, it can result in double taxation of those dividends.
- Out-of-Pocket Charity: It’s not just cash donations that are deductible. If you donate goods or use your personal car for charitable work, these are potential tax deductions. Just be sure to get and keep receipts.
- State Taxes: Did you owe state taxes when you filed your previous year’s tax returns? If you did, don’t forget to include this payment as a tax deduction on your current year’s tax return.
- Medicare Premiums: If you are self-employed (and not covered by an employer plan or your spouse’s plan), you may be eligible to deduct premiums paid for Medicare Parts B and D, Medigap insurance and Medicare Advantage Plan. This deduction is available regardless of whether you itemize deductions or not.
- Income in Respect of a Decedent: If you’ve inherited an IRA or pension, you may be able to deduct any estate tax paid by the IRA owner from the taxes due on the withdrawals you take from the inherited account.
Kevin Theissen, HWC Financial
