Income tax savings you could be missing

Are you paying more tax then you need to? When it comes to filing taxes, getting the best returns is not about skill — it’s about what you know. Here are some tax strategies you may have overlooked.

• Earned Income Tax Credit (EITC). Millions of lower-income people miss out on this every year. According to the IRS, 20 percent of taxpayers who are eligible for the EITC fail to claim it. The EITC is a credit — not a deduction, ranging from $600 to $7,430. The credit is designed to supplement wages for low- to moderate-income workers. Many wage earners previously classified as middle class who have lost jobs, took a pay cut or worked fewer hours may now be eligible for this credit based on lower income.

• Be flexible. Company-sponsored health-care flexible-spending accounts and transportation-reimbursement accounts give you a tax break on money you’re already spending on medical bills and commuting expenses. Yet few people take advantage of them, only 20 percent of eligible employees use flexible-spending accounts. You and your spouse can each stash up to $3,050 in the health-care account and $300 a month each for parking and mass transit.   

• State sales taxes. You must choose between deducting state and local income taxes, or state and local sales taxes. Many retired taxpayers may be able to take advantage of the sales-tax option. If you purchase a vehicle, boat or airplane, you get to add the state sales tax you paid to the amount shown in IRS tables for your state. The same goes for homebuilding materials you purchased. These items are easy to overlook.

• Refinancing points. With interest rates so low over the past few years, lots of homes have been refinanced. When you refinance a mortgage you have to deduct the points over the life of the loan (i.e., 30 years). On a second refinance or sale you get to deduct all the remaining points not yet deducted in that year.   

• State tax you paid last year. Did you owe tax when you filed your 2022 state tax return? Remember to include that amount with your state-tax deduction on your 2023 return, along with state income taxes withheld from your paychecks or paid via estimated- tax payments.

• Bad debt. Ever loan someone money and not get repaid? You could qualify for the non-business bad-debt tax deduction for individuals. You can claim a loss up to $3,000 per year. Also, you can carry forward any amounts you did not claim in the current year.

• Excess Social Security. If you worked for more than one employer, and each took Social Security taxes out of your paycheck based on what they paid you. You may claim a refund of the excess on your return if your yearly wages exceeded $160,200.   

These are just some of the tax-saving opportunities that taxpayers often overlook. Spending a little time planning for these early in the tax year can reap large tax savings when you file.

Barry Lisak is an IRS enrolled agent specializing in personal and small business taxes for 30 years. Any questions can be directed to him at 516-829-7283, or mrbarrytax@aol.com

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