Five Most Overlooked Tax Deductions

Who among us wants to pay the IRS more taxes than we have to?

While few may raise their hands, Americans regularly overpay because they fail to take tax deductions for which they are eligible. Let’s take a quick look at the five most overlooked opportunities to manage your tax bill.

1. Reinvested Dividends: When your mutual fund pays you a dividend or capital gains distribution, that income is a taxable event (unless the fund is held in a tax-deferred account, like an IRA). If you’re like most fund owners, you reinvest these payments in additional shares of the fund. The tax trap lurks when you sell your mutual fund. If you fail to add the reinvested amounts back into the investment’s cost basis, it can result in double taxation of those dividends.¹
   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 about the investment company can be obtained from your financial professional. Read it carefully before you invest or send money.
2. Out-of-Pocket Charity: It’s not just cash donations that are deductible. If you donate goods or use your personal car for charitable work, these are potential tax deductions. Just be sure to get a receipt for any amount over $250.²
3. State Taxes: Did you owe state taxes when you filed your previous year’s tax returns? If you did, don’t forget to include this payment as a tax deduction on your current year’s tax return. There is currently a $40,400 cap on the state and local tax deduction for 2026.³
4. Medicare Premiums: You may be able to deduct unreimbursed medical and dental premiums, co-payments, deductibles, and other medical expenses to the extent that the costs exceed 7.5 percent of your adjusted gross income. This includes most Medicare premiums.⁴
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 IRA owner from the taxes due on the withdrawals you take from the inherited account.⁵

1. Investopedia.com, August 24, 2025
   2. IRS.gov, 2025
   3. IRS.gov, 2025
   4. IRS.gov, 2025
   5. IRS.gov, 2025. In most circumstances, once you reach age 73, you must begin taking required minimum distributions from a Traditional Individual Retirement Account (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 to contribute to a Traditional IRA past age 70½ as long as you meet the earned-income requirement.

The content is developed from sources believed to be providing accurate information. The information in this material is not intended as tax or legal advice. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. This material was developed and produced by FMG Suite to provide information on a topic that may be of interest. FMG Suite is not affiliated with the named broker-dealer, state- or SEC-registered investment advisory firm. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security. Copyright FMG Suite.

Can I Create a Roth if I’m Over the Income Limit?

Yes, you might be able to create a Roth individual retirement account (IRA) if you’re over the income limit. This strategy involves converting a traditional IRA to a Roth IRA.

The idea, often referred to as a “backdoor Roth conversion,” is sometimes used by individuals whose incomes exceed the current limits for direct Roth IRA contributions.

Keep in mind that there are pros and cons associated with a backdoor Roth conversion, including tax consequences. This article provides a high-level overview that should be used for informational purposes only. Tax, legal, and accounting professionals can provide more detailed insights about the tax implications of this strategy.

Why Consider a Roth IRA?

Think of a Roth IRA as one piece of your retirement income puzzle. When you peek behind the curtain, here are some of the features that some retirement-minded people consider important:

• Unlike their traditional IRA cousins, required minimum distributions do not apply to original owners of Roth IRAs. That can play a role as you create an estate strategy.
• When retirement rolls around, Roth IRAs can add flexibility to your income strategy since you’ve already paid taxes on that money.
• To qualify for the tax-free and penalty-free withdrawal of earnings, Roth IRA distributions must meet a 5-year holding requirement and occur after age 59½. Tax-free and penalty-free withdrawals can also be made under other circumstances, such as the owner’s death. The original Roth IRA owner is not required to make minimum annual withdrawals.

How Does a Backdoor Roth Conversion Work?

Let’s break down this strategy step by step.

First, you’ll need a traditional IRA. For 2026, you can contribute up to $7,500 or $8,600 if you’re 50 or older. Your contributions may be tax-deductible, depending on your situation, but keep in mind that income limits and other requirements may affect your eligibility.

If you move ahead with a traditional IRA, remember that once you reach the age of 73, you must begin taking the required minimum distributions from a traditional IRA in most circumstances. Withdrawals from traditional IRAs are taxed as ordinary income and, if made before age 59½, may be subject to a 10% federal income tax penalty.

Second, timing matters. One strategy suggests that individuals who convert their traditional IRAs to Roth RIAs sooner rather than later may be more effective in managing their taxes.

Pro tip: The IRS looks at all your traditional IRAs together when calculating taxes on your conversion. This “pro rata rule” means that having existing traditional, SEP-IRAs, or SIMPLE IRAs could affect your tax bill. Your tax, legal, and accounting professionals can provide more detailed insights about how the rule applies in your situation.

SIMPLE IRAs and SEP-IRAs are taxed as ordinary income and follow the same distribution rules and penalties as those of traditional IRAs.

So Much to Consider

Owning a Roth IRA can provide flexibility when creating a retirement strategy and managing an estate. However, similar to any idea, it isn’t one-size-fits-all. Many factors should be considered, including your tax situation, existing IRA balances, and long-term objectives.

1. IRS.gov, November 13, 2025

The content is developed from sources believed to be providing accurate information. The information in this material is not intended as tax or legal advice. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. This material was developed and produced by FMG Suite to provide information on a topic that may be of interest. FMG, LLC, is not affiliated with the named broker-dealer, state- or SEC-registered investment advisory firm. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security. Copyright FMG Suite.