As tax season approaches, it’s essential to ensure you’re taking advantage of all the deductions available to you. Missing out on eligible deductions can result in paying more taxes than necessary. Here’s a guide to some commonly overlooked tax deductions that can help reduce your tax liability and maximize your refund. While not every situation here may apply and you would need to assess your specific situation, these are great ways to legally minimize a tax bill.
Why Deductions Matter
Tax deductions lower your taxable income, which can significantly reduce the amount of tax you owe. By identifying and claiming all eligible deductions, you can keep more of your hard-earned money. However, many taxpayers miss out on valuable deductions simply because they are unaware of them or don’t keep proper records.
Commonly Overlooked Deductions
- State and Local Taxes Paid
You can deduct state and local income taxes, sales taxes, or property taxes paid during the year. Make sure to choose the one that benefits you the most. If you live in a state with no income tax, deducting sales tax may be more advantageous.
- Student Loan Interest
Interest paid on student loans is deductible, up to $2,500 per year. This deduction is available even if you don’t itemize your deductions, as long as you meet certain income requirements.
- Medical and Dental Expenses
Medical and dental expenses that exceed 7.5% of your adjusted gross income (AGI) are deductible. This includes unreimbursed payments for doctor visits, prescriptions, medical supplies, and health insurance premiums.
- Charitable Contributions
Donations to qualified charitable organizations are deductible. This includes not only cash donations but also the fair market value of donated goods and expenses incurred while doing charitable work.
- Job Search Expenses
If you’re looking for a new job in your current field, you can deduct job search expenses. This includes costs for resumes, travel, and placement agency fees. However, these expenses are only deductible if you itemize and they exceed 2% of your AGI.
- Home Office Deduction
If you use part of your home exclusively for business, you may qualify for a home office deduction. This can include a portion of your rent or mortgage, utilities, and home maintenance costs.
- Educational Expenses
You can deduct the cost of tuition, books, supplies, and other educational expenses if the education maintains or improves your job skills or is required by your employer. This includes the Lifetime Learning Credit and the American Opportunity Credit.
- Child and Dependent Care Credit
If you paid for childcare while you worked or looked for work, you might be eligible for the Child and Dependent Care Credit. This credit can cover a portion of the expenses paid to a caregiver for your children under 13 or for a disabled spouse or dependent.
- Retirement Contributions
Contributions to retirement accounts such as a 401(k) or IRA are deductible, reducing your taxable income. There are limits to the amount you can contribute, so be sure to maximize these contributions each year.
State-Specific Deductions and Credits
In addition to federal deductions, many states offer unique deductions and credits that can further reduce your tax liability. These may include deductions for tuition, rent, and certain types of investments, as well as credits for energy-efficient home improvements and other state-specific incentives. It’s important to research the specific deductions and credits available in your state or consult with a tax professional to ensure you take full advantage of these opportunities.
Keeping Records
To claim these deductions, it’s crucial to keep accurate records and receipts. Organize your documents throughout the year and store them in a secure place. This will make it easier to find everything you need when it’s time to file your taxes.
Consult a Tax Professional
Tax laws can be complex, and staying up-to-date on all eligible deductions can be challenging. Consulting a tax professional can help ensure that you don’t miss out on any deductions and that your tax return is accurate and compliant with current laws.
Taking advantage of all available tax deductions can significantly reduce your tax liability and increase your refund. By being aware of commonly overlooked deductions and keeping thorough records, you can ensure you’re getting the most out of your tax return. If you need assistance, consider consulting a tax professional to help you navigate the complexities of the tax code and maximize your deductions.
Need help identifying and claiming your deductions? Schedule a consultation with us today and let us help you maximize your tax benefits.