Top 11 Common Tax Deductions Individuals Often Miss
Tax season is upon us, and many individuals miss out on valuable deductions that could significantly reduce their tax liabilities.
This article highlights the most common tax deductions that often go unnoticed, helping you maximize your savings and secure a bigger refund. By understanding and claiming these deductions, you can take control of your financial health during tax time.
Key Takeaways:
Charitable Contributions: Beyond just monetary donations, non-cash items can also be deductible. State Sales Tax: An alternative deduction option for states without income tax. Medical Expenses: Out-of-pocket costs exceeding 7.5% of AGI may be deductible. Student Loan Interest: Parents can claim as deductions for their child under certain conditions. Home Office Deduction: Even if you are working from home, this deduction may apply. Retirement Contributions: Maximizing your contributions can lower your taxable income. Energy-Efficient Home Improvements: These can provide direct tax credits. Health Savings Account (HSA) Contributions: A tax-deductible way to save for qualified medical expenses. Investment Expenses: In specific cases, you can still deduct certain investment-related costs.1. Charitable Contributions
Many overlook the full scope of deductible charitable donations. Beyond cash, non-cash contributions such as clothing, furniture, and household items are eligible. Additionally, out-of-pocket expenses for volunteer work, including parking, may also be deductible.
2. State Sales Tax
Consider claiming state sales tax instead of state income tax if you live in a no-income-tax state or made significant purchases during the year. This can be a viable option for maximizing your deductions.
3. Medical and Dental Expenses
Expenses over 7.5% of your AGI can be deductible. This includes out-of-pocket medical costs such as treatments, surgeries, dental work, and travel related to medical care.
4. Student Loan Interest Paid by Parents
If parents pay back their child's student loans, it is treated as if the money was given to the child, who then pays the debt. In this case, the child (if not a dependent) can claim up to $2,500 of student loan interest paid by their parents, provided they meet IRS requirements.
5. Educator Expenses
Eligible teachers can deduct up to $250 per year for classroom supplies. For joint filers, both spouses can each claim $250, or up to a total of $500.
6. Home Office Deduction
Increased with the rise of remote work, the home office deduction applies to those who use part of their home exclusively for business purposes. Self-employed individuals and some employees can claim the deduction.
7. Self-Employment Expenses
Self-employed individuals can deduct various business-related expenses, including insurance premiums, home office expenses, equipment, and travel. Plus, half of the self-employment tax paid can be deducted.
8. Retirement Contributions
Contributions to traditional IRAs and specific self-employed retirement accounts reduce your taxable income. Contributions made by the tax filing deadline can still count for the previous tax year.
9. Energy-Efficient Home Improvements
Certain energy-efficient home improvements, such as solar panels, solar water heaters, and wind turbines, may qualify for a direct tax credit, reducing your overall tax bill.
10. Health Savings Account (HSA) Contributions
Contributions to HSAs are tax-deductible, and withdrawals for qualified medical expenses are tax-free. This makes it a great option for those with high-deductible health plans.
11. Investment Expenses
Prior to the Tax Cuts and Jobs Act, many investors could deduct certain investment-related costs. While the act limited these, some situations still allow for deductions of advisory service fees in producing investment income.
Final Tips for Maximizing Your Tax Deductions
To ensure you do not miss out on any deductions, follow these best practices:
Keep Good Records: Maintain all receipts, bills, and documents that support your deductions. Proper record-keeping is crucial for claiming deductions. Stay Informed: Tax laws evolve, so it is essential to stay updated on changes or consult a tax professional to make sure you are taking advantage of all available deductions and credits.Maximizing your tax deductions requires a thorough understanding of tax laws and diligent record-keeping. If in doubt, consulting with a tax professional can guide you through the complexities of your tax situation.