35 Tax Deductions You Can't Afford to Miss Out On
Tax law is incredibly complicated, and even if yours are easy there may be deductions you're missing. Student loan interest, home office deductions for telecommuters, and heck, in Massachusetts you can claim half your rent! Do any of these sound like you? Here's our list of 34 commonly overlooked tax deductions and credits you won't want to miss out on.
Note that some of these can be pretty complicated, so if you're unsure of anything, consult a (tax deductible) tax preparation expert for advice.
You live in a state with no income tax.
Most people realize that they can choose between a standard or itemized tax deductions, but until I began researching overlooked tax deductions I had no idea there was a third option. If you choose to itemize your income taxes, you can choose between deducting state income taxes or state sales taxes paid. Of course, you want to choose whichever works out in your favor, and if you live in a state with no income tax, well, obviously the state sales tax option is the one you want. Check out the IRS' Sales Tax Deduction Calculator to see how much you may be able to claim.
You donated money, goods or services to charity.
Giving to charity pays off at tax time, when charitable contributions can be claimed as deductions. Keep receipts from all of your giving, especially if you gave more than $250, and keep in mind that it's not just cash that applies. If you donated any goods, drove your own car, or paid out-of-pocket for a charity's benefit, you can claim it.
Your parents paid off some of your student loans.
Basically, the IRS treats this money as a gift, which means you're not supposed to be taxed on it. So come tax time, if your parents helped you pay down your student loans, you can claim the interest they paid on your taxes. To be eligible, you can't be claimed as a dependent, and the deduction is capped at $2,500.
You spent money as part of a job search.
To be eligible, you must be looking for a job in the same line of work as your current or most recent job. That means you can't claim this if it's your first job, or if you're switching careers. But if you qualify, even if you weren't hired, you can write off money you spend in pursuit of a job, including transportation, food and lodging, employment agency fees, and printing costs for resumes and business cards.
You moved more than 50 miles to take a job.
If you paid to move more than 50 miles away from home to take job, your moving expenses are deductible, including hiring movers and mileage for driving your own car to get there.
You're a military reservist who traveled overnight to fulfill your obligations.
Reservists traveling more than 100 miles and staying overnight away from home to attend meetings or drills can deduct lodging costs, 50 percent of food costs, and mileage.
You're self-employed and qualify for Medicare.
If you run your own business and qualify for Medicare, you can deduct your Medicare Part B and Medicare Part D premiums. This deduction also includes the cost of a supplemental Medicare policy or Medicare Advantage. The best part is that you don't even have to itemize to claim this one. However, if you're eligible for coverage under an employer's health plan for you or your spouse, then this deduction is not available to you.
You pay for child care.
Tax credits are worth between 20 and 35 percent of your total child care costs while you're working. However, Kiplinger notes that taking advantage of an employer's child care reimbursement account that pays child care with pretax dollars is probably a better deal.
You inherited an IRA.
If you inherited an IRA, you're going to be hit with estate taxes on the account balance, and they can be hefty. But you can claim the estate tax paid as an income-tax deduction as the money is withdrawn from the IRA, saving you a significant chunk of change.
You refinanced your mortgage.
When you refinance your mortgage, you can deduct points over the life of the loan. So for a 30 year mortgage, divide your points by 30 and that's what you can deduct on your taxes. Plus, when you sell or pay off the loan, you get to deduct all of the leftover points you hadn't yet deducted all at once. There's an exception if you're refinancing an already refinanced loan with the same lender, in which case the unpaid points on the first refinance get added to the second, then divvied up over the life of the loan.
Your employer paid your full-time salary while you were on jury duty.
If you served jury duty and got paid for it, but then had to turn the check over to your employer since they paid your regular salary while you were gone, then you can deduct the amount you handed over. It helps make up for getting taxed on income you were forced to give up.
You're a full-time college student.
The American Opportunity Credit is covers 100 percent of the first $2,000 spent on qualifying college expenses, plus 25 percent of the next $2,000. That maxes out at $2,500 per year for up to four years, so long as your annual income stays below $80,000 (or $160,000 if you're married and filing jointly) while you're in school.
You're taking classes to improve your job skills.
Depending on your income level, the Lifetime Learning Credit is available to anyone who is paying for continuing education classes that improve your job skills. It covers 20 percent of your expenses up to $10,000 for a max credit of $2,000.
You paid to check your bags on a business trip.
No one likes baggage fees, so it's pretty cool that if you travel for business you can deduct them as a business travel expense.
You upgraded your home to use alternative energy sources.
You can get a credit for up to 30 percent of the total cost of equipment that uses alternative energy. Eligible upgrades include things like wind turbines, solar hot water heaters, and geothermal heat pumps.
You bought an electric car
Driving an electric car can reduce your tax burden by $7,500, and most models – like Tesla, Nissan Leaf, and Chevy Volt – are eligible. However, this tax credit is only available for the first 200,000 electric cars sold by a manufacturer. Tesla has plans to build 500,000 by the end of 2018, so if you're in the market for an electric car it pays to know whether the model you're buying is still eligible for that tax credit.
You're getting alimony from a divorce.
Most divorce expenses aren't deductible, and alimony is taxable income if you're receiving it. But portions of your attorney's fees may be deductible, like the fee for settling on an amount for your alimony payments or any tax advice they give you about it. So make sure your attorney provides an itemized account of their fees.
You're considered a "low income" household, lost your job, or took a pay cut.
TurboTax says that 25 percent of taxpayers eligible for the Earned Income Tax Credit don't claim it, sometimes because the eligibility rules are pretty complicated, and sometimes because people just don't know that they can. It's not just low income taxpayers who may be eligible. Middle income earners also may qualify if they lost a job, took a pay cut, or worked fewer hours. Make sure to save with TurboTax coupons when you get your taxes done
You did laundry during a business trip.
If you were traveling for work and had some laundry done at your own expense while you were away, that expense is tax deductible.
You've bought things specifically to help you to do your job better.
Those who work in professions that require protective gear – like electricians, welders, carpenters, and so on – can deduct it from their taxes if they bought it themselves. Likewise, if you subscribe to any trade publications or pay dues to an industry professional association, that's tax deductible too. If you're spending money in the name of your job, deduct it!
You belong to a union.
Your union rep may not even know that any dues you pay to a labor union can be deducted from your taxes.
Your property was lost or destroyed by a sudden, unexpected event.
This forgotten tax deduction isn't for that unfortunate time that you accidentally dropped your iPhone in the toilets at a sticky-floored dance club. Think more along the lines of a sinkhole eating your car or a mudslide taking out your house. Certain theft losses are also deductible.
You sold a home that you've improved since you first bought it.
If you've added any upgrades to your home that increase its value, then the value of those improvements becomes a tax deduction when you later sell it. That reduces your gains on the sale, and in turn lowers your capital gains tax.
You paid out-of-pocket for prescription birth control.
So long as it wasn't bought using pre-tax dollars through a flexible spending account, your prescription contraception is tax deductible.
You needed glasses or contacts but don't have vision insurance.
If you paid out of pocket for contact lenses or prescription eyeglasses last year, that's a tax deduction.
You go to a financial adviser.
Any fees you paid to get advice about investments that result in taxable income can be claimed as a tax deduction.
You paid for tax preparation software or services.
That's right, tax prep services are tax deductible. That includes tax prep software like TurboTax as well as any real live human tax professionals you make work with.
You lost money gambling.
Yes, you may be able to write off at least some of the money you lost during that bachelor weekend in Vegas. It requires reporting your winnings as taxable income, and then your losses can't exceed your winnings.
You're paying to take care of your parents.
If your parent (or parents) qualifies as a dependent, then many of the costs associated with caring for them are tax deductible, including in-home care and nursing home care.
You pay rent in Massachusetts.
In Massachusetts you can claim half of your rent up to a max of $3,000 on your state tax return. Of course, the deduction only applies to your principal residence.
You're a teacher who paid out-of-pocket for classroom supplies.
Teachers are eligible for a $250 tax deduction every year to account for unreimbursed expenses like school supplies, books, computers, and anything else they spend their own money on for classroom use. Plus, any amounts above and beyond $250 can be claimed as miscellaneous deductions on Schedule A, those it's limited to two percent of your adjusted gross income. For most teachers, it means they get roughly $40 back. This popular credit almost didn't survive the tax reform fight, but survive it did.
P.S. Most teachers spend more than $250 on school supplies for their classrooms, so we've put together a list of discounts just for teachers to help those out-of-pocket funds go further.
You got married at a church or a historical site last year.
Obviously you can't write off your entire wedding as one giant tax deduction, but fees paid to a church or any other nonprofit venue could be classified as charitable contributions.
You sent your kids to summer camp.
It's a creative application of the child-care credit, but if both parents are working then shipping the kids off to camp in the summer counts as a child care expense - and that means you can claim it on your tax return.
You work from home.
With the proliferation of telecommuting, home offices are now so common that claiming it on your taxes is no longer the red flag it once was. You can either itemize your home office out, or you can take the "safe harbor" option, which lets you multiply the square footage of your home office by $5 (up to a max of $1,500) and leave it at that. The catch is that it truly must be your principal place of business and used exclusively for professional purposes - so if you're thinking of claiming the guest room where your mother-in-law stays and where you happen to have a desk you use to work remotely every other Friday, that's not going to qualify.
You're self-employed and pay 100 percent of social security taxes.
If you're self-employed and therefore can't split social security taxes 50/50 with an employer like everyone else, you can deduct half of what you pay in since you're responsible for 100 percent.