Common Tax Deductions You Might Be Missing

Tax season can feel like a whirlwind, with forms to fill out and deadlines to meet. But in the rush to file, you might be overlooking some valuable tax deductions that could save you money. These deductions can reduce your taxable income, leading to a lower tax bill or even a bigger refund. Let’s explore some common tax deductions you might be missing and how to make sure you’re getting every dollar you deserve.

Home Office Deduction

If you’re one of the many people working from home, you could be eligible for the home office deduction. This deduction allows you to deduct expenses related to the portion of your home used exclusively for business. Whether you’re a freelancer, a small business owner, or working remotely for an employer, this deduction can add up.

The IRS offers two methods to calculate this deduction: the simplified option and the regular method. The simplified option allows you to deduct $5 per square foot of your home office, up to a maximum of 300 square feet. The regular method involves calculating actual expenses, like mortgage interest, utilities, and maintenance, based on the percentage of your home used for business.

To qualify, your home office must be used regularly and exclusively for work. So, if your home office doubles as a guest room, you may not be eligible. However, if you meet the criteria, this deduction can significantly reduce your taxable income.

Student Loan Interest Deduction

If you’re paying off student loans, don’t forget about the student loan interest deduction. You can deduct up to $2,500 of interest paid on your student loans, even if you don’t itemize your deductions. This deduction is available to single filers with a modified adjusted gross income (MAGI) of less than $85,000, or $170,000 for joint filers.

The best part? This deduction is available for both federal and private student loans, and you don’t need to itemize to claim it. It’s an above-the-line deduction, meaning it reduces your taxable income directly, which can lead to more savings on your tax bill.

Medical and Dental Expenses

Medical expenses can be a significant burden, but they might also provide tax relief. If your unreimbursed medical and dental expenses exceed 7.5% of your adjusted gross income (AGI), you can deduct the amount over that threshold. This deduction is available if you itemize your deductions, and it covers a wide range of expenses, including doctor visits, prescription medications, medical devices, and even mileage for medical-related travel.

To maximize this deduction, gather all your medical receipts and records throughout the year. You might be surprised at how quickly these expenses add up, especially if you’ve had major medical issues or surgeries. This deduction can help alleviate some of the financial strain by reducing your taxable income.

Charitable Contributions

If you’re in the habit of giving back, you might be able to reduce your tax bill through charitable contributions. Donations to qualified organizations, whether in cash or goods, are deductible if you itemize your deductions. This includes donations to churches, non-profits, schools, and other charitable organizations.

Keep in mind that for cash donations, you can deduct up to 60% of your AGI. For non-cash donations, like clothing or household items, the amount you can deduct is based on the fair market value of the items donated. Don’t forget to keep receipts or acknowledgment letters from the charity for your records—these are required if you’re claiming a deduction of $250 or more.

Educator Expenses

Teachers and educators often spend their own money on classroom supplies, and the IRS recognizes this with the educator expense deduction. If you’re a K-12 teacher, instructor, counselor, or principal, you can deduct up to $250 of unreimbursed expenses for classroom supplies, books, and even COVID-19 protective equipment.

If both you and your spouse are educators and file jointly, you can each claim this deduction, bringing the total to $500. This deduction is available even if you don’t itemize, making it a straightforward way to reduce your taxable income.

Retirement Contributions

Contributing to a retirement account like a 401(k) or IRA not only helps secure your financial future, but it can also lower your tax bill. Contributions to a traditional IRA are tax-deductible, up to certain limits, depending on your income and whether you or your spouse have a retirement plan at work.

If you’re self-employed, consider contributing to a SEP-IRA or a Solo 401(k). These accounts have higher contribution limits, allowing you to save more for retirement while enjoying significant tax deductions. Additionally, the Saver’s Credit might be available if your income falls within certain limits, offering a credit of up to 50% of your contributions.

State and Local Taxes (SALT) Deduction

The state and local taxes (SALT) deduction allows you to deduct certain taxes you’ve paid to state and local governments, including income taxes, sales taxes, and property taxes. However, due to the Tax Cuts and Jobs Act of 2017, the deduction is capped at $10,000 ($5,000 if married filing separately).

If you itemize your deductions, this is a valuable way to reduce your federal tax bill. Keep in mind that you can choose to deduct either state and local income taxes or state and local sales taxes, whichever is more beneficial. For those living in states with no income tax, the sales tax deduction can be particularly advantageous.

Business Expenses

If you’re self-employed or run a small business, you might be missing out on deductible business expenses. These can include office supplies, business travel, professional memberships, and even a portion of your phone and internet bills if used for business purposes.

Keeping detailed records of all your business expenses throughout the year is crucial. Not only will this help you maximize your deductions, but it also provides the documentation you need in case of an audit. The more expenses you can legitimately deduct, the lower your taxable income—and the less you’ll owe in taxes.

Final Thoughts

Tax season doesn’t have to be stressful, especially when you know about the deductions that can lower your taxable income. By taking advantage of these common deductions, you can reduce your tax bill and keep more of your hard-earned money.

Remember, the key to maximizing your deductions is keeping detailed records throughout the year. Whether it’s medical expenses, charitable contributions, or business costs, having the right documentation will ensure you get the most out of your tax return. So, as you prepare to file, keep these deductions in mind and see how much you can save.