5 Most Overlooked Tax Deductions
Who wants to pay the IRS more than they have to? Probably no one — yet Americans regularly overpay their taxes simply because they miss deductions they’re actually eligible for.
Below are five commonly overlooked tax deductions worth reviewing before you file.
1. Reinvested Dividends
When your mutual fund pays a dividend or capital gains distribution, that’s a taxable event — unless the fund is held in a tax-deferred account like an IRA. Most fund owners reinvest these payments into additional shares rather than taking the cash.
Here’s the tax trap: when you eventually sell the fund, failing to add those reinvested amounts back into your cost basis can result in double taxation of the same dividends.
Mutual funds are sold only by prospectus. Please consider the charges, risks, expenses, and investment objectives carefully before investing. A prospectus containing this and other information can be obtained from your financial professional and should be read carefully before investing.
2. Out-of-Pocket Charity
Charitable deductions aren’t limited to cash donations. If you donate goods or use your personal vehicle for charitable work, both may qualify as tax deductions.
- Keep a receipt for any single donation over $250
- Track mileage if you’re using your car for charitable purposes
- Save documentation for donated goods, not just cash gifts
3. State and Local Taxes
Did you owe state taxes when you filed last year’s return? If so, that payment may be deductible on your current-year return.
The state and local tax (SALT) deduction cap has changed significantly in recent years. Under the One Big Beautiful Bill Act, the cap rose from $10,000 to $40,000 for the 2025 tax year, with a scheduled increase to $40,400 for 2026. The higher cap phases down for taxpayers with modified adjusted gross income above certain thresholds.
Since Florida has no state income tax, this deduction is primarily relevant to property taxes for Florida residents, rather than state income tax payments.
4. Medicare Premiums
If you’re self-employed — and not covered by an employer plan or a spouse’s plan — you may be able to deduct premiums paid for:
- Medicare Part B
- Medicare Part D
- Medigap insurance
- Medicare Advantage plans
This deduction is available whether or not you itemize your other deductions.
5. 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 original account owner from the taxes due on withdrawals you take from the inherited account.
Under SECURE 2.0, in most circumstances, once you reach age 73, you must begin taking required minimum distributions from a Traditional IRA. Withdrawals from Traditional IRAs are taxed as ordinary income, and if taken before age 59½, may be subject to a 10% federal income tax penalty. You may continue contributing to a Traditional IRA past age 70½ as long as you meet the earned-income requirement.
Don’t Leave Money on the Table
Overlooked tax deductions for individuals can add up quickly. A brief review with a qualified professional each year can help ensure you’re not paying more than you owe.
For Fort Myers and Southwest Florida residents, working with a fee-only fiduciary advisor can help you understand which of these commonly overlooked tax deductions may apply to your specific situation.
Frequently Asked Questions
What are the most commonly overlooked tax deductions?
Some of the most commonly overlooked tax deductions include reinvested mutual fund dividends added to cost basis, out-of-pocket charitable expenses, state and local tax payments, self-employed Medicare premiums, and estate tax deductions on inherited retirement accounts.
Why do reinvested dividends cause tax problems?
When mutual fund dividends are automatically reinvested, they’re still taxable in the year received. If you don’t add those reinvested amounts to your cost basis when you eventually sell the fund, you risk paying tax on the same income twice.
Can I deduct charitable donations that aren’t cash?
Yes. Donated goods and mileage driven for charitable purposes can both be deductible. Keep a receipt for any donation over $250.
What is the current SALT deduction cap?
The SALT deduction cap increased from $10,000 to $40,000 for the 2025 tax year, rising to $40,400 for 2026, under the One Big Beautiful Bill Act. The cap phases down for higher-income taxpayers.
Can self-employed individuals deduct Medicare premiums?
Yes. Self-employed individuals not covered by an employer or spouse’s plan may deduct premiums for Medicare Parts B and D, Medigap, and Medicare Advantage — regardless of whether they itemize.
