Continuing our look from Part I at some of the most overlooked tax deductions, we will discuss another five that may affect you or someone you know:
State Income Taxes Paid: State taxes paid throughout the year can be included in your itemized federal deductions. Remember also to claim any state taxes you owed last year for 2012, deductions for state taxes paid in during the previous year are often missed.
State Sales Taxes: If you happen to live in a state where there is no state income tax or you purchased a large item such as an RV or boat last year, it may be to your advantage to claim state sales tax instead of state income tax. If you do live in a no-income tax state such as Nevada or Texas, then this is a no-brainer. If your state has an income tax but you think you may be better off claiming sales tax, speak to your professional accountant to determine if this your best course of action.
Student Loan Interest Paid by Parents: If you are no longer a dependent on your parents’ tax return but they are still helping you pay back your student loan, you may be qualified to deduct the interest paid on your tax return. The maximum deduction allowed for student loan interest paid by parents is $2500.
Single Parents with Dependent Children Filing Status: If you are single at the end of the year and had a child or other dependent living with you for at least half the year, you may be eligible to adjust your filing status from single to head of household, thus qualifying for a lower tax rate.
Widowed Spouses Filing Status: If you have recently lost your spouse, this is a very difficult time in your life. You are already making numerous adjustments to cope with your new living conditions. The good news is you do not need to make an adjustment to your filing status during the tax year when your spouse passed away; your status can remain Married Filing Jointly. In addition, if you still have dependent children, there is a special filing status you can claim for the two subsequent years called Qualifying Widow/Widower with Dependent Child.
In Part III of this series, we will look at social security benefits, education credits, and travel and medical expenses.