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When it comes to filing taxes every year, many taxpayers leave money on the table by overlooking common tax deductions. Maximizing your deductions is crucial in reducing taxable income and increasing refunds—get the most of your money by being aware of these 8 deductions people often miss and learning how to claim them.
Tax deductions reduce the amount of taxable income for any given taxpayer. This is not to be confused with tax credits, which reduce the amount of tax due, dollar for dollar. A tax deduction, rather than directly lowering the amount of tax owed, takes a percentage off your taxable income. It’s very important to keep accurate, detailed records and receipts in order to file proper deduction claims when the time rolls around each year. Utilizing professional tax preparation services can help you with this and set you up with a tax professional who can help to identify common tax deductions you may otherwise miss.
Depending on your filing status, income, and educational expenses paid with nontaxable funds, you might be eligible to deduct whatever interest you have paid on a student or educational loan. The IRS offers a survey to determine whether you meet the eligibility requirements for student loan interest deduction. The maximum deduction is $2,500 per year, and this applies to all student loans, not just federal.
If you’ve given money or goods to a tax-exempt organization and have kept detailed donation receipts and records, you may be able to deduct these donations. Qualified charitable institutions that are tax-exempt as per section 501(c)(3) of the Internal Revenue Code should be able to tell you how much of your contribution will be tax-deductible.
For $250 or more in cash donations, you’ll need either a receipt or written letter of acknowledgement from the charity you chose to donate to. Non-cash contributions, like bags of clothing dropped off at the local Goodwill, are a bit trickier and require attention to rules and timelines. Non-cash contributions valued over $5,000 need professional appraisal. Ask your tax prep professional if you’re unsure whether a charitable contribution is tax-deductible.
As of 2023, you can use Form 1040 to deduct aspects of your medical and dental expenses paid out of pocket if they total more than 7.5% of your adjusted gross income, which will be calculated before you file for itemized deduction. Beyond co-pays and prescriptions, items like hospital stays, acupuncture treatments, lactation equipment, contact lenses, or dental fillings that meet the 7.5% rule and are not covered by an insurance plan can be claimed for deduction using your receipts.
If you are self-employed and work out of a home office, meaning a room in your place of residence is exclusively and regularly used for your primary career, you might qualify for a home office deduction. The IRS has a set of criteria for qualifying for the home office deduction.
You can choose to use the simplified or more detailed deduction method when filing a home office claim. The simplified option uses a rate of $5 per square foot in the home office with a maximum size of 300 square feet and maximum deduction of $1,500. Another method uses a percentage of the home designated as a place of business—essentially, it checks your home office expenses against the totaled expenses of the rest of your home. Form 8829 can help you determine what exactly you can deduct.
The educator expense deduction allows teachers and educators to deduct up to $300 in eligible expenses. These might include classroom supplies, technology, or professional development.
If you itemize when filing federal taxes, you might qualify to deduct certain taxes paid to your state and local governments. The SALT deduction cap after the Tax Cuts and Jobs Act (TCJA) caps deductions at $10,000. These deductions can include property taxes and state income or sales taxes.
Say you use your vehicle to help out a charity by transporting donations, or you drive somewhere to volunteer. That mileage might be deductible. Outside of charity, you may also be able to deduct mileage costs if you had to travel for medical purposes. Current IRS mileage rates are 14 cents per mile for charities and 21 cents per mile for medical purposes. In order to claim this deduction, you’ll need to track your mileage. Record your odometer reading before each trip and list your purpose, as well as starting and ending location, and then record the odometer reading again after the trip. You can use pen and paper for this, but there are also a range of apps and online tools to help.
Depending on whether you are covered by a retirement plan at your place of work, you may be eligible for an IRA or 401(k) deduction. These deductions can be taken whether you itemize your claims or not, but if you are enrolled in a work retirement plan and your gross adjusted income exceeds a certain amount (determined annually by the IRS), you may not qualify in full. Those who are not enrolled in work retirement plans should be able to deduct their IRA contributions in full.
If you are 50 or older, you can make catch-up contributions to your retirement plan. For 2024, the IRS caps these tax-deferred contributions at $7,500.
At Credit Central, we offer comprehensive tax preparation services that set you up for success. Apply online today to make sure you don’t miss these common tax deductions.
