A tax deduction reduces your taxable income, which in turn reduces your tax bill. One of the most time-consuming tasks involved in doing your tax return is the process of researching and listing your deductions. Even so, some filers still forget some important deductions. Sometimes it's due to rushing. Other times it's simply because they don't know these deductions exist.
Car Sales Tax
Filers often forget the sales tax deduction -- specifically the deduction for paying sales tax on a vehicle. It allows you to enter the amount you paid to your state's department of motor vehicles in sales taxes on the purchase of a car using Schedule A (Itemized Deductions). It's common to miss this deduction if you simply forget that you've purchased a new or used car in the previous year.
Another deduction that some filers overlook is the cost of moving during the tax year. If you relocated due to a change in employment, perhaps you can take this deduction. The location of the new job has to be at least 50 miles from the old location (rules may change by tax year). To take the deduction, you have to work full time at the new position for at least 39 weeks and you must spend the money on moving within a year of your start date. Possible moving costs include renting a moving truck, storage expenses, and car shipping fees. Examine IRS Form 3903 to do the calculation and determine eligibility.
If you own a small business, you'll find that Schedule C (profit or loss from business activities) has a long list of possible expense deductions. Some businesses and property owners forget or neglect to take deductions of depreciation for equipment. Depreciation considers the fact that equipment decreases in worth with time and use (wear and tear), causing a loss of value for the owner. Filers often miss or forget this deduction because calculating depreciation is sometimes a complicated and confusing process. You must determine the cost basis (original value or amount you paid) of the piece of property then determine its useful life in years to deduct the yearly decline in value.
- Ryan McVay/Photodisc/Getty Images