As tax season approaches, many people scramble to gather their documents and file their returns, hoping for a sizable refund. However, even the most diligent filers may overlook some valuable deductions that could reduce their tax liabilities or increase their refunds. The key to maximizing your tax return is knowing which deductions apply to you and taking advantage of them.
Here are some common—and not-so-common—deductions that you might be missing:
1. State and Local Taxes (SALT) Deduction
Did you know you can deduct state and local income, sales, and property taxes on your federal return? This is known as the SALT deduction, and it can be especially valuable for taxpayers in high-tax states. While there’s a cap of $10,000 for this deduction, it can still significantly reduce your taxable income if you qualify.
How to Maximize It:
If your state doesn’t impose an income tax, consider claiming the deduction for state sales taxes instead, especially if you’ve made large purchases like a vehicle or home improvements.
2. Student Loan Interest Deduction
If you’re paying off student loans, you may be able to deduct up to $2,500 of the interest paid during the year, even if you don’t itemize your deductions. This deduction is available for both federal and private student loans, and it’s a great way to ease the burden of student debt.
How to Maximize It:
Check the income limits to ensure you qualify. The deduction starts to phase out at certain income levels, so make sure your adjusted gross income (AGI) falls within the allowable range.
3. Home Office Deduction
With more people working from home, the home office deduction has become increasingly relevant. If you’re self-employed or run a business from home, you can deduct expenses related to the portion of your home used exclusively for business purposes. This includes a portion of your rent, utilities, and even home repairs.
How to Maximize It:
Make sure the space is used solely for business, as the IRS is strict about this. Keep detailed records of your home office expenses, including square footage and bills related to upkeep.
4. Charitable Donations
Most people know that charitable donations are deductible, but many forget to include non-cash donations like clothes, household items, or even the cost of mileage driven for charitable work. If you’ve donated goods to your local charity or driven to a charitable event, those contributions may qualify for a deduction.
How to Maximize It:
Keep a detailed record of all donations, including receipts for non-cash items and documentation of any out-of-pocket expenses related to volunteering.
5. Medical and Dental Expenses
If your medical expenses exceeded 7.5% of your adjusted gross income (AGI) in the tax year, you can deduct the excess. This includes everything from doctor visits and prescriptions to medical equipment and even certain home modifications made for medical reasons.
How to Maximize It:
Track all out-of-pocket medical costs throughout the year, as these expenses can add up. Include travel costs related to medical care, such as mileage to and from doctor appointments.
6. Education-Related Deductions
Beyond the student loan interest deduction, you may qualify for other education-related tax breaks. The Lifetime Learning Credit provides up to $2,000 per tax return for qualified education expenses, while the American Opportunity Tax Credit offers up to $2,500 per eligible student.
How to Maximize It:
If you’re taking classes to improve job skills, save receipts for tuition, books, and required materials. Make sure to differentiate between credits and deductions, as they impact your return differently.
7. Job Search Expenses
If you’ve looked for a new job in the same line of work, you might be eligible to deduct job search expenses, including résumé preparation, travel, and placement agency fees. While this deduction is not available to everyone, it’s worth checking if you can claim it.
How to Maximize It:
Keep detailed records of your job search costs. Make sure your expenses relate to searching for a job in your current occupation.
8. Self-Employment Expenses
If you’re self-employed, there are a wide range of deductions you can claim. From office supplies to advertising and even retirement plan contributions, these deductions reduce your taxable income and can save you a substantial amount.
How to Maximize It:
Keep receipts and detailed records for every business-related expense. You may also be able to deduct half of your self-employment tax.
9. Energy-Efficient Home Improvements
If you’ve made your home more energy-efficient, you might be eligible for a tax credit, not just a deduction. The Residential Energy Efficient Property Credit allows you to claim a credit for solar panels, wind turbines, and geothermal heat pumps installed in your home.
How to Maximize It:
Look into energy-efficient improvements that qualify for this credit, and ensure you have documentation to support your claim. These credits directly reduce your tax bill, making them particularly valuable.
10. Retirement Savings Contributions
Contributions to retirement accounts, such as a Traditional IRA or a 401(k), can reduce your taxable income for the year. Even if you didn’t max out your contributions during the year, you have until the tax filing deadline to make additional contributions that can be applied to the previous year.
How to Maximize It:
Make sure to contribute as much as possible to retirement accounts before the filing deadline to take advantage of the full deduction.
Conclusion
Maximizing your tax return is all about awareness and preparation. By keeping thorough records and being mindful of potential deductions, you can significantly reduce your taxable income and increase your refund. It’s always wise to consult with a tax professional to ensure you’re taking advantage of all the deductions and credits you’re eligible for.
