If you happen to be among this cluster, you must recognize that every share purchase raises your tax basis for that fund. The good side about this is the consequent reduction of your taxable capital gain (or at the other end raising you’re your tax-saving loss) upon share redemption.
Should you not itemize your reinvested dividends on your tax basis, you could be your dividends taxed twice. The first could be the regular taxation when dividends are paid out and reinvested at once, and the second taxation when such transaction is added to the sales proceeds. Not something to enjoy, right?
There is no issue requiring assistance from the mutual fund if you are uncertain about your tax basis. It is the norm for these funds to inform of the shares’ tax basis whose redemption was executed that year.
Were you ignoring deductions of Medicare premiums?
If you are self-employed with your business yet in operation after Medicare qualification, you can take off your premiums. These deductions specifically apply to premiums for Medicare Part D and Part B, in addition to expenses incurred for a Medicare Advantage plan.
It is not mandatory you itemize before enjoying this deduction. Also, these types of tax deductions are independent of the 7.5% of AGI test that is usually valid for itemized medical expenditures.
Take note that this deduction doesn’t apply for premiums disbursed for a period (say months) where you had eligibility for an employer-subsidized health plan. The said health plan could be provided by either your spouse’s employer (as typical of jobs that provide family medical coverage) or your very employer (for cases where you run your enterprise along with a paid job).
Bet you have not heard of the American Opportunity Credit
It would be unfair if we don’t tell you about the American Opportunity Credit, especially for those making significant payments for college tuition.
This tax break bases on 100% of the initial $2k disbursed for college qualification and 25% of the following $2k, running into a maximum annual credit of $2,500 for each student.
Individuals with an $80k adjusted gross income at most and $180k maximum for wedded couples qualify for the full credit. Should your income beat these margins, you would get your tax credit in batches. It is worth adding here that in instances where your tax liability is less than your tax credit, a refund is triggered.
So tell me, aren’t these smart ways to lower your taxes? Now your heart doesn’t need to skip like Hijiki Ikuyama (world record owner for skipping) when you hear about the IRS.