Tax season comes with many intricacies. While you may be filing your taxes on time and paying every applicable tax, you may be wondering whether you’re paying more taxes and if you qualify for any deductions. There is a high chance that you will not know about these deductions unless you are a tax expert.
Most taxpayers are unaware that major tax changes have occurred since 2017. That means you might be missing out on some crucial tax deductions that could help you pay less in taxes.
Read on as we explain some top overlooked tax deductions you shouldn’t miss out on.
1. Medical and Dental Expenses
Although insurance may cover part of your medical expenses, sometimes you may have to pay for drugs or other related costs. You can deduct these expenses if the total amount is more than 7.5% of your AGI. Examples of these expenses include fees to doctors, payment for eyeglasses, or treatment for drug addiction. However, you can’t deduct expenses like cosmetic surgery or over-the-counter medications.
2. Charitable Donations
Any contributions qualified under 501(c)(3)Charity qualify for tax deductions. Seniors over 70 can transfer up to $100,000 directly from their traditional IRA to a charity tax-free. Married couples can donate up to $200,000, but none can contribute more than $100,000.
3. State and Local Tax Deduction
The state and local tax or SALT deduction allows you to deduct local and state taxes you paid to certain governments. However, the deduction only applies to those who itemize, not those who take the standard deduction. For example, in 2023, taxpayers could deduct up to $5,000 if married and filing separately and up to $10,000 of paid eligible taxes. That includes taxes like personal property taxes, real estate taxes, or state/local sales taxes.
4. Mortgage Points Deductions
Deducting mortgage points, maximum loan charges, or loan origination fees is possible. However, you need to itemize the deduction to qualify. The IRS also points out that taxpayers must deduct points over the life of the loan if the points are for a second home or if the points were paid to refinance a mortgage.
5. Student Loan Interest Deduction
You qualify for a $2,500 deduction on interest paid on federal and private student loans annually. The deduction will be phased out at $155,000 for joint and up to $75,000 for single filers. It also disappears when your income reaches $185,000 for joint and $90,000 for single.
6. Self-Employment Expenses Deduction
Small businesses qualify for several deductions, such as startup costs, wages/payroll taxes, bad debt, home office expenses, and education/training expenses. For example, they can claim up to $5,000 in startup costs deductions. Certain business entertainment and travel expenses are also deductible.
7. Child Tax Credit
Child tax credit or CTC applies to families with children under 17 years. The 2023 child tax credit can get you about $2,000 per child. Additionally, you could get a refund of $1,600 of the credit.
8. Solar Tax Credit
The residential clean energy credit or solar tax credit can get you a deduction of up to 30% on the installation cost. That applies to solar panels and solar water heaters.
9. 401(K) Contributions Deduction
The IRS won’t tax you if you contribute to a 401(k). The limit is $30,500 for people 50 and above and $23,000 for the rest. Additionally, any contribution you make to a ROTH IRA gives you a tax credit of 10%, 20%, or 50%, depending on your AGI, which goes on form 1040. Rollover contributions don’t qualify for this credit.
10. Military Reserve Travel Costs
Military reservists qualify for partial travel expense deductions for attending drills or meetings more than 100 miles away. Half of meal expenses and accommodation costs count as tax write-offs.
11. Home Office Tax Deductions
Remote workers or those self-employed qualify for home office deductions if they use part of their home for income generation. If you have a qualifying home office and meet all the requirements, you can deduct part of your insurance costs and utility bills.
Other overlooked tax deductions include gambling losses, theft losses on income, impairment-related work expenses, and federal estate tax on income from specific inherited items. It’s overwhelming knowing which type of deductions you qualify for. Speaking to a tax professional can help you understand your options and advise you on the deductions to apply.
