Tax season can feel overwhelming, but it doesn’t have to be. Many taxpayers leave money on the table by overlooking valuable deductions. Understanding and utilizing these lesser-known tax breaks can significantly lower your taxable income. Explore these 15 deductions to discover potential savings that might enhance your financial year.
Student Loan Interest Deduction
Many taxpayers overlook the opportunity to deduct student loan interest from their taxable income. In particular, this advantage is especially helpful for individuals with lower modified adjusted gross incomes. As financial resources increase, the eligible amount gradually decreases. This tax break can significantly relieve financial pressure, allowing borrowers to effectively manage their loan repayments.
Health Savings Account Contributions
If you have a high-deductible insurance plan, contributing to a Health Savings Account (HSA) is worth considering. Contributions to the HSA can help decrease your overall taxable income, and withdrawals used for eligible medical expenses are not subject to taxes. This dual benefit can enhance your financial strategy while ensuring you have funds available for healthcare needs as they arise.
Charitable Contributions
Donating to charities helps those in need and can also result in substantial tax advantages. Cash and property contributions are eligible for tax relief, and they provide you with proper receipts. The IRS requires you to itemize to access these perks. Additionally, consider donating appreciated stock for an even greater financial impact.
Home Office Deduction
Are you working from home? You might qualify for the home office deduction. You can deduct some of your household outlays if your workspace is used exclusively for business. This includes mortgage interest, utilities, and maintenance fees. You can choose between the simplified option or calculating actual amounts to maximize your savings.
Medical Expenses
Taxpayers can deduct qualified healthcare costs if they exceed a certain percentage of their taxable income. This includes hospital bills, prescription medications, particular procedures, and dental and vision care expenditures. Only costs surpassing the designated threshold are eligible for deduction, making it essential to track all related outlays carefully throughout the year.
State Sales Tax Deduction
Instead of deducting state income taxes, consider claiming the state sales tax benefit. Those living in states without income taxes may find this particularly helpful. You can use the IRS’s calculator or keep receipts to file your claim. Alternatively, you may opt for a fixed amount based on income.
Job Search Expenses
Some states may still offer deductions for job search expenses, even though, as of 2024, such expenses are non-deductible for taxpayers under the Tax Cuts and Jobs Act (TCJA) of 2018. This includes costs for resume services, travel expenses, and agency charges, which cannot be claimed on federal tax returns, so checking local laws is essential.
Investment Interest Expense
Investors who borrow funds for purchases can take advantage of writing off related costs, known as investment interest expense. This applies to loans for assets like stocks and bonds, but the write-off is limited to your net investment income for the year. Excess amounts can be rolled over to future tax years, enabling potential savings later.
Educator Expenses
Teachers and eligible educators can deduct out-of-pocket classroom expenses, covering supplies, materials, and professional development courses. Available to public and private school instructors, this deduction eases the financial burden of essential items like books and technology. Full-time teaching status qualifies you, and this benefit applies regardless of whether you itemize your taxes.
Mortgage Insurance Premiums
Homeowners paying mortgage insurance may qualify for a write-off on their premiums for loans taken out after a specific date. This benefit is available to taxpayers with modified adjusted gross incomes below a certain threshold, phasing out for higher earners. To claim the credit, homeowners should report the premiums on Schedule A when detailing deductions.
Retirement Contributions
Contributing to retirement accounts like IRAs or 401(k)s secures your future and offers valuable tax benefits. The deductible depends on your income and filing status, particularly for traditional IRAs. Those covered by workplace retirement plans may find their tax advantages gradually decreasing as their income rises.
Moving Expenses for Active Duty Military
Armed Forces members may write off moving expenses if they relocate due to an order. This includes costs for travel and lodging. While the general public cannot claim moving expenses, military personnel can benefit significantly. Retaining specific documentation, such as travel itineraries and lodging invoices, is vital for substantiating your claims.
Alimony Payments
For divorces finalized before December 31, 2018, alimony payments are tax-deductible for the payer, allowing for a reduction in taxable earnings. Recipients must report these payments as part of their income, which can influence their tax bracket. It’s essential to keep thorough records and consult your divorce decree to comply with IRS regulations related to these financial obligations.
Child and Dependent Care Credit
Costs incurred for childcare while working or searching for a job may make you eligible for the Child and Dependent Care Credit. This credit can cover a percentage of qualifying expenses for children under age 13. Claiming it can help offset daycare or other dependent care costs and provide significant support for working parents.
Residential Energy Credits
Taxpayers investing in eco-friendly home upgrades may qualify for residential energy credits. This includes solar panels, solar water heaters, and energy-efficient windows and doors. Not only can these credits significantly offset the costs of improvements, but they also contribute to reducing your overall tax liability, making your home more sustainable and cost-effective.
