Tax season can be a time of discovery especially when uncovering deductions that might ease your tax burden. While many taxpayers are familiar with common deductions like mortgage interest and student loan interest, there are numerous underutilized deductions that can significantly impact your tax return. Here are 11 top tax deductions that you might be overlooking.
1. State Sales Tax Deduction
Did you know you can choose between deducting state income tax or state sales tax on your federal return? For those living in states without income tax, or if you made large purchases throughout the year, opting to deduct sales tax can be more beneficial. Use the IRS calculator or save your receipts to see if this deduction works for you.
Why you might be missing it: Many assume they must deduct income tax, but the choice between sales and income tax is often overlooked.
2. Self-Employment Expenses
Self-employed individuals and freelancers often miss out on deductions related to their business expenses. Expenses like home office setup, internet, phone bills, and even business meals can qualify as deductions. For a home office, ensure it’s a dedicated space used exclusively for business purposes to meet IRS requirements.
Why you might be missing it: Self-employed people may not realize the range of expenses they can deduct, especially if they don’t keep detailed records.
3. Health Savings Account (HSA) Contributions
If you have a high-deductible health plan (HDHP), contributing to an HSA is an excellent way to save on taxes. Contributions are tax-deductible, and the money can grow tax-free if used for qualified medical expenses. Additionally, HSAs roll over year-to-year, unlike Flexible Spending Accounts (FSAs).
Why you might be missing it: Not everyone knows that HSA contributions reduce taxable income, even if made through an employer.
4. Charitable Mileage
While many people are aware of the deduction for charitable donations, fewer realize they can deduct the mileage driven for volunteer work. The IRS sets a standard rate for charitable miles, allowing you to deduct travel to and from charity-related events or work.
Why you might be missing it: It’s easy to overlook mileage as a deductible expense if you’re already deducting cash donations.
5. Medical Expenses Beyond Insurance
If your out-of-pocket medical expenses exceed 7.5% of your adjusted gross income, they may be deductible. This includes treatments, surgeries, dental and vision care, and even travel expenses to medical facilities. Keep detailed records of these expenses to maximize this deduction.
Why you might be missing it: Many taxpayers don’t track medical expenses closely enough, especially smaller amounts that add up over time.
6. Education Expenses and Lifetime Learning Credit
The Lifetime Learning Credit (LLC) offers a tax credit of up to $2,000 per year on qualified education expenses. Unlike the American Opportunity Credit, the LLC doesn’t have an age limit, making it a great option for professionals seeking additional training or courses. However, you must meet income requirements to qualify.
Why you might be missing it: People often associate education credits with students, not realizing they may qualify if they’re pursuing further education.
7. Student Loan Interest Paid by Parents
If your parents helped pay your student loans, you might still be eligible for a tax deduction. The IRS treats these payments as if they were given to you as a gift and then used to pay the loan, making you eligible for the student loan interest deduction.
Why you might be missing it: Many assume only the loan borrower can claim the deduction, but there’s flexibility when family helps with repayment.
8. Job Search Expenses
Expenses related to job searching in your current field can be tax-deductible. Eligible expenses include resume printing, travel expenses for interviews, and job placement agency fees. However, note that these deductions are only available if you’re not searching for your first job and if you itemize deductions.
Why you might be missing it: Many taxpayers overlook job search costs, especially if their search spans several months.
9. Casualty and Theft Loss Deduction
If you’ve experienced a major disaster, such as a fire, flood, or theft, you may be able to deduct your unreimbursed losses. Following certain federally declared disasters, the IRS allows deductions for losses not covered by insurance. Be sure to document the losses thoroughly and check if your disaster qualifies.
Why you might be missing it: People often overlook this deduction if they don’t realize their losses qualify as deductible.
10. Educator Expenses
If you’re a teacher or educational professional, you might be eligible for a deduction on classroom expenses you paid out of pocket. Educators can deduct up to $300 for classroom supplies, books, and even professional development courses, and both primary and secondary school educators qualify.
Why you might be missing it: Educators may be unaware of the deduction or underestimate the potential deduction amount, especially with rising classroom expenses.
11. Gambling Losses
Surprisingly, gambling losses are deductible, but only to the extent of your gambling winnings. So if you reported winnings from gambling, don’t miss the opportunity to deduct your losses up to that amount. You’ll need detailed records and receipts to support these claims.
Why you might be missing it: Casual gamblers may not realize they can claim losses as long as they have corresponding winnings.
How to Maximize Your Deductions
To ensure you’re capturing all possible deductions, consider these strategies:
- Keep Detailed Records: Small expenses add up. Track mileage, receipts, and any documents that support deductible expenses.
- Consult a Tax Professional: A tax expert can identify deductions you might not know about and help maximize your return.
- Use Tax Preparation Software: Many platforms prompt you to input relevant information for overlooked deductions, which can make filing easier.
Final Thoughts
Tax deductions can significantly reduce your tax liability, but many go unclaimed simply because taxpayers are unaware they exist. By familiarizing yourself with these often-missed deductions and keeping thorough records, you can maximize your savings and feel confident when filing. If you’re uncertain about any deductions or want to ensure you’re not leaving money on the table, consulting a tax professional can be a worthwhile investment.
By applying these tips and considering deductions outside of the usual, you may discover tax savings that make a noticeable difference on your return. Keep these deductions in mind this tax season to keep more of your hard-earned money.
