When tax season arrives, many people focus on income and expenses but often miss out on valuable deductions that could reduce their tax liability. Understanding the full scope of tax deductions can help you maximize your savings and ensure you don’t pay more than necessary. Here are some of the most commonly overlooked tax deductions that you should consider when filing your taxes.
1. State and Local Taxes (SALT Deduction) Many taxpayers forget that they can deduct state and local taxes paid throughout the year. This includes income taxes, property taxes, and sales taxes. While the deduction is capped at $10,000, it can still be significant for those who itemize deductions instead of taking the standard deduction.
2. Student Loan Interest Deduction If you are paying off student loans, you may qualify for a deduction of up to $2,500 on interest paid during the tax year. This deduction is available even if you do not itemize and can provide relief for recent graduates managing loan repayments.
3. Medical and Dental Expenses Medical costs can be burdensome, but many expenses are deductible if they exceed 7.5% of your adjusted gross income (AGI). Eligible expenses include doctor visits, surgeries, prescription medications, and even certain travel expenses related to medical care.
4. Charitable Contributions Donations to qualified charities can be deducted from your taxable income. This includes cash donations as well as non-cash contributions like clothing, furniture, and even mileage driven for charitable purposes. Keeping detailed records of donations is essential to claim this deduction.
5. Home Office Deduction If you are self-employed and use a portion of your home exclusively for business, you can deduct expenses related to that space. This includes rent, utilities, and maintenance costs. Even if you use the simplified deduction method, you can claim $5 per square foot, up to 300 square feet.
6. Educator Expenses Teachers and educators who purchase school supplies out of pocket can claim a deduction of up to $300 ($600 if filing jointly with another educator). Eligible expenses include books, classroom supplies, and technology used in the classroom.
7. Retirement Account Contributions Contributions to traditional IRAs and 401(k) plans may be tax-deductible, reducing your taxable income. If you qualify, the Saver’s Credit can provide an additional tax credit for retirement savings, making this deduction even more valuable.
8. Job Search Expenses If you looked for a new job in the same industry during the tax year, certain expenses such as resume preparation, travel, and employment agency fees might be deductible. While recent tax law changes have limited some of these deductions, they are still worth exploring.
9. Moving Expenses for Military Members For active-duty military members relocating due to orders, moving expenses such as transportation, lodging, and shipping household goods are deductible. This can be a major tax break for those who frequently move for service-related assignments.
10. Mortgage Interest Deduction Homeowners with a mortgage can deduct interest paid on loans up to $750,000. This deduction can significantly lower tax liability and make homeownership more affordable.
11. Dependent Care Expenses If you pay for childcare while you work, you may qualify for the Child and Dependent Care Credit. This credit covers up to 35% of eligible childcare costs, including daycare, babysitting, and after-school programs.
12. Unreimbursed Work Expenses If your employer does not reimburse you for work-related expenses such as uniforms, tools, or travel, you may be able to deduct these costs. However, these deductions are subject to certain limitations and eligibility criteria.
13. Self-Employment Expenses Freelancers and business owners can deduct business-related expenses, including advertising, office supplies, legal fees, and travel. Additionally, self-employed individuals can deduct half of their self-employment taxes.
14. Adoption Expenses If you adopted a child, you may qualify for the adoption tax credit, which covers adoption-related expenses such as legal fees, court costs, and travel expenses. This credit can be a valuable way to offset the costs of adoption.
15. Health Savings Account (HSA) Contributions Contributions to an HSA are tax-deductible and can be used for qualifying medical expenses. If you have a high-deductible health plan, this is a great way to save on medical costs while reducing your taxable income.
16. Jury Duty Pay Given to Employer If your employer paid your full salary while you served on jury duty and required you to turn over your jury duty pay, you can deduct the amount you gave to your employer. This prevents you from being taxed on income you did not actually receive.
17. Energy-Efficient Home Improvements Making energy-efficient upgrades to your home, such as installing solar panels, energy-efficient windows, or insulation, may qualify you for tax credits. The Residential Energy Efficient Property Credit provides a percentage of costs back as a credit.
18. Gambling Losses If you report gambling winnings as income, you can also deduct gambling losses up to the amount of your winnings. Proper record-keeping of bets and losses is required to claim this deduction.
19. Interest on Business Loans If you have a small business and took out a loan for business expenses, the interest paid on that loan may be deductible. This can include loans for business equipment, real estate, or startup costs.
20. Legal and Professional Fees Legal fees related to business operations, estate planning, or tax preparation may be deductible. Similarly, fees paid to accountants and tax professionals for tax-related services are often eligible for deductions.
Conclusion Many taxpayers miss out on valuable deductions simply because they are unaware of them. By taking advantage of these often-overlooked tax deductions, you can lower your taxable income and keep more money in your pocket. Make sure to keep accurate records and consult a tax professional to ensure you are maximizing your tax savings.
