Eight little-known ways to reduce your tax bill or increase your refund

IT is officially time to start preparing to file your 2021 tax returns.

The Internal Revenue Service (IRS) says it's still too early to file a 2021 return, but there are steps to take now to get ready for the tax-filing season.

The IRS FreeFile portal is still closed, but it is important to begin gathering and organizing your tax records.

Now is a good time to take inventory of expenses which you can include.

These deductions may help lower your tax bill or even increase your tax refund on your tax return.

We outline some tax deductions to consider.

1. Sales tax

You have the option of deducting sales tax or state income taxes from your federal income tax.

In a state that doesn’t have its own income tax, this can be a big money saver.

Even if you paid state taxes, the sales tax break might be a better deal if you made a big purchase like an engagement ring or a car.

You have to itemize to take the deduction rather than take the standard deduction.

The IRS has a sales tax deduction calculator to help you figure out the amount of state and local general sales tax you can claim when you itemize deductions.

Your total deduction for state and local income, sales and property taxes is limited to a combined, total deduction of $10,000.

If married, filing separately, the total deduction is limited to $5,000.

2. Health insurance premiums

The IRS says if you itemize your deductions for a taxable year, you may be able to deduct expenses you paid that year for medical and dental care for yourself, your spouse, and your dependents.

You may deduct only the amount of your total medical expenses that exceed 7.5% of your adjusted gross income.

Medical care expenses include payments for the diagnosis, cure, mitigation, treatment, or prevention of disease, or payments for treatments affecting any structure or function of the body.

The IRS says you may not deduct funeral or burial expenses, nonprescription medicines, toothpaste, toiletries, cosmetics, a trip or program for the general improvement of your health, or most cosmetic surgery.

You may not deduct amounts paid for nicotine gum and nicotine patches that don't require a prescription.

3. Teacher tax savings

Educators certainly spend their own money to better their classrooms.

The IRS says eligible educators can deduct up to $250 of unreimbursed trade or business expenses.

If you are married, filing jointly and both of you are eligible educators, that amount is $500.

Qualified expenses are amounts you paid or incurred for participation in professional development courses, books, supplies, computer equipment (including related software and services), other equipment, and supplementary materials you use in the classroom.

For courses in health or physical education, the expenses for supplies must be for athletic supplies.

Qualified expenses also include the amounts for personal protective equipment, disinfectant, and other supplies used for the prevention of the spread of coronavirus. 

4. Charitable donations

Individuals, including married individuals filing separate returns, who take the standard deduction can claim a deduction of up to $300 on their 2021 federal income tax for their charitable cash contributions made to certain qualifying charitable organizations.

For married individuals filing a joint return, the maximum deduction is increased to $600.

Under the temporary law, taxpayers do not need to itemize deductions on their tax returns to take advantage of this.

5. Child care credit

You may be able to claim the child and dependent care credit if you paid expenses for the care of a qualifying individual to help you and your spouse to work or actively look for work.

For 2021 only, the total expenses you may use to calculate the credit may not be more than $8,000 for one qualifying individual.

The amount is $16,000 for two or more qualifying individuals. 

The IRS says you may not take this credit if your filing status is married filing separately. 

6. Lifetime learning credit

The lifetime learning credit is for qualified tuition and related expenses paid for eligible students enrolled in an eligible educational institution.

This credit can help pay for undergraduate, graduate, and professional degree courses, including courses to acquire or improve job skills.

There is no limit on the number of years you can claim the credit.

It is worth up to $2,000 per tax return.

7. Unusual business expenses

The US tax code allows for many unusual but legitimate tax deductions.

Whether or not the IRS will sign off on it depends, but taxpayers have declared the following examples.

• Guard dog: If your dog guards your business location, you may be able to deduct pet care costs. Size and breed are considered. You should keep a record of the dog's hours.
• Paying wages to kids: If you pay your children for work, you may be able to deduct it as a business expense from your business' income. This can also lower your income tax bracket.
• Specialized work clothes: Upkeep of costumes or uniforms can be deducted if they are a requirement for work and not suitable for general wear.

8. Self-employed Social Security

If you are self-employed, you have to pay 15.3% of your income for Social Security and Medicare taxes.

For most wage earners, these taxes are usually paid by the employer.

The plus for being self-employed, you do get to deduct the 7.65% employer portion off your income taxes.

The deadline to file your taxes is Monday, April 18, 2022.

We explain why your 2022 tax refund might be smaller.

Plus, what states have an extended deadline to file their 2021 federal tax returns.