Overlooked Tax Deductions

As tax season approaches, taxpayers diligently gather W-2 forms, receipts, and prepare their tax returns. According to the IRS, millions of people annually miss out on deductions they qualify for, potentially increasing their refunds significantly. These hidden gems can greatly reduce your tax burden, putting more money back in your pocket. Here are the top 10 overlooked tax deductions to boost your refund.

1. State and Local Taxes (SALT): The IRS allows a deduction of up to $10,000 for state and local taxes, including income, sales, and property taxes. This is a combined limit, so if a state has no income tax, you can fully deduct sales and property taxes up to the $10,000 cap.
2. Charitable Donations: Donating to worthy causes not only benefits your community but can also benefit your taxes. You can deduct cash donations to qualifying charities (subject to AGI limits) and the fair market value of donated items. Long-term capital assets can be deducted at fair market value, while short-term capital assets are deducted based on the asset’s basis. Keep detailed records of your donations, including the charity’s name, donation date, and amount, as well as receipts for non-cash donations.
3. Student Loan Interest: Dealing with student loan debt? There’s a light at the end of the tunnel. You can deduct up to $2,500 of interest paid on qualified student loans during the tax year. This deduction phases out at higher income levels.
4. Home Office Expenses: Taxpayers who own their own business and regularly use a dedicated space in their home for work may qualify to deduct a portion of their home office expenses. This includes rent, mortgage interest, utilities, and depreciation of furniture and equipment. The home office must be exclusively and regularly used for your business, and you must meet specific IRS criteria. Unfortunately, W-2 employees working remotely for their employer cannot claim this deduction.
5. Retirement Savings Contributions: Contributing to a traditional IRA or employer-sponsored retirement plan, like a traditional 401(k), reduces your taxable income for the contribution year and helps you save for the future. For 2023, the IRA contribution limit is $6,500 ($7,500 if 50 or older), and the 401(k) limit is $22,500 ($30,000 if 50 or older). For the 2024 tax year, these limits will increase to $7,000 ($8,000 if 50 or older) for IRAs and $23,000 ($30,500 if 50 or older) for 401(k) plans. Note: Consult your tax advisor as these deductions may not apply to Roth contributions.
6. Medical Expenses: Unreimbursed medical and dental expenses exceeding 7.5% of your adjusted gross income (AGI) can be deducted on your tax return. These expenses include doctor bills, prescription medications, hospital costs, and travel expenses to and from medical appointments. Keep detailed records of medical expenses throughout the year to ensure you take advantage of this valuable deduction.
7. Moving Expenses: Active duty military members can deduct moving expenses incurred due to a military order. This includes the cost of packing, transporting, and storing household goods, as well as travel expenses for the service member and their family.
8. Educator Expenses: Educators can deduct up to $300 of out-of-pocket expenses for classroom supplies and professional development. This deduction is available to teachers, instructors, counselors, and aides working in K-12 public or private schools.
9. Health Insurance Premiums: If you’re self-employed and pay your own health insurance premiums, these costs can be deducted on your tax return. Individuals obtaining health insurance through the marketplace and qualifying for a premium tax credit can also claim this deduction, subject to income limits.
10. Miscellaneous Deductions: While the standard deduction has increased in recent years, itemizing deductions can still be beneficial if the total exceeds the standard deduction. Common miscellaneous deductions include unreimbursed employee business expenses, investment fees, and gambling losses (up to the amount of your winnings).

Remember, this list is not exhaustive, and tax laws can be complex. The best approach is to consult with a tax professional to ensure you’re taking advantage of all eligible deductions and credits. By uncovering these hidden gems, taxpayers can maximize their refunds and keep more of their hard-earned money.

Tax Tip: Keep detailed records of all income, expenses, and receipts throughout the tax year. This organization will make tax filing easier and ensure you claim all eligible deductions.