12 Most Overlooked Tax Deductions You Shouldn’t Ignore
By Will Vitka,2023-01-31
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Tax time means filing a return to show what you earned last year. Either the federal government (and states, plus D.C.) refunds what taxpayers have overpaid or taxpayers pony up what they underpaid over the year to the government.
Deductions are legal ways to reduce your taxable income and keep more money in your bank account. But too often they can go overlooked, especially if you do your own taxes.
While most taxpayers use the standard deduction, you may save money by itemizing. Here are 12 itemized deductions you don’t want to miss.
Giving to charity isn’t just a nice thing to do. It can also save you a bunch of money when you file your return.
While you probably won’t forget about a big lump sum given to charity, all the little things you did throughout the year add up as well.
That includes clothing you donated, food for your local soup kitchen, or even the gas in your car ($.14 cents per mile) if you were driving for volunteer work.
Just remember that your charitable contributions generally can’t exceed 60% of your adjusted gross income when you itemize, and the nonprofits have to be qualified. You also need to keep detailed records.
Dental and medical expenses
There are a whole host of dental and medical expenses taxpayers can deduct. They include diagnosis, cure, disease prevention, or treatment.
Payments to professionals in both physical health (dentists, doctors, surgeons) and mental health (psychiatrists, psychologists) fields are also covered.
Of course, there are some caveats. The care received has to have been for you, your spouse, or your dependents, and you can’t claim it if you got reimbursed or someone else footed the bill. Plus, you can only deduct the amount that goes over 7.5% of your AGI.
Taxpayers who are self-employed, or if they earned money from a side hustle, might be eligible for a health insurance deduction.
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While gambling winnings are taxable, gambling losses are deductible. Make sure you keep track of your winnings — it doesn’t matter if it’s lotteries, raffles, horse races, casinos, or market value for prizes — and losses and itemize your deductions.
In addition, your gambling deduction — filed under "Other Itemized Deductions” — can’t be greater than your reported gambling income.
Home mortgage interest
Owning a home is a big part of the American dream. If you succeeded in purchasing your castle after Dec. 16, 2017, you can deduct home mortgage interest on the first $750,000 of your loan. If you bought your home before Dec. 16, 2017, that limit shoots up to $1 million.
Those numbers are different if you’re married filing separately at $375,000 and $500,000, respectively.
Mortgage interest points — the fee homeowners pay their lender to shave off a portion of their interest rate, usually about 1% of the loan total — are included.
It doesn’t matter if you rent or own, if you use part of your home or another building on your property solely for business on a regular basis, you can claim the home office deduction.
That means you can write off depreciation, insurance, maintenance, mortgage interest, rent, repairs, and utilities. The rate is $5 per square foot of the home used for business and tops out at $1,500.
If you’re an employee, however, you can’t claim the home office deduction.
Impairment-related work expenses
Disabled taxpayers can deduct expenses for things they need to work, be they items or services. For example, if you have a service animal or guide dog, you can deduct veterinary bills, training, food, and licenses.
It doesn’t matter if it’s a mental or physical impairment as long as you aren’t reimbursed, the cost is “reasonable,” and it allows you to do your job.
The Social Security Administration (SSA) will deduct those costs from your taxable income when it determines your eligibility for benefits.
Jury pay given to your employer
Most of the time, workers still get wages paid by their employer when they’re summoned to jury duty, either in the form of their usual pay or in paid leave. On top of that, jurors are paid to serve, and that pay is taxable.
However, if your employer requires you to fork over what the court pays, it can be deducted on your return.
Moving expenses for military personnel
If you’re a military member on active duty, Uncle Sam will give you a deduction on qualified moving expenses if you haven’t been reimbursed by the government.
It has to be a permanent change of station under military order. This would be a move from your home to your first post, a move from one permanent post to another, or your last post to your home.
The usual stuff is covered — household items, lodging, personal effects, storage, and travel — but meals are not.
Property and real estate taxes
If you own personal property such as a boat or a car, you can deduct the taxes you pay, regardless of how frequently you’re charged. State and local real estate taxes can be deducted as well.
Bear in mind that the combined deduction limit for state and local income, sales, and property taxes is $10,000.
State sales taxes
If you live in a state that doesn’t have income tax — Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington, and Wyoming — you can choose between a deduction for state and local taxes or general sales taxes on the IRS’s Schedule A form. You can’t deduct both.
The IRS has a sales tax deduction calculator online. The maximum deduction, including property taxes, and state and local real estate taxes, is $10,000.
Student loan interest
It pays to get smart. Taxpayers can claim a deduction for the interest they paid on student loans. It doesn’t matter if the loan was for yourself, your spouse, or your dependent.
The deduction maxes out at $2,500 a year and applies to all student loans, not just the federal ones.
Vehicle registration fees
The taxes you pay on a vehicle don’t end when you buy it. Every state charges a registration fee. Those registration fees vary.
Sometimes it’s once a year, sometimes it’s a flat fee, sometimes it’s the value of the car, sometimes it’s how much the vehicle weighs, and sometimes it’s a combination.
The good news is you can deduct the portion of the registration that’s based on value, but not the portion based on weight.
Taking full advantage of deductions is a great way to reduce your taxable income and keep more money in your pocket.
While any tax professional worth their salt should know to look for them, the more you know as a taxpayer, the better you’ll fare during tax season.
If you decide to tackle taxes on your own, make sure you choose the best tax software available.
Something to keep in mind: Tax preparation fees, including any software you might purchase, are no longer deductible. But if you’re self-employed, tax prep can be written off as a business expense.
And remember, the deadline to file a return or request an extension is April 18.
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