When it’s time to file taxes, most people remember the big tax deductions like mortgage interest, retirement contributions, and charity donations. However, there are many lesser-known tax write-offs that can save you money and reduce how much you owe the government.
Whether you hire professional tax assistance or do your taxes yourself, it’s in your best interest to reduce taxable income and learn about commonly missed tax deductions.
From the tax pros at Western Shamrock, here are some tax deductions often overlooked so you can cut your tax bill and maximize your savings.
Why Tax Deductions Matter
Tax deductions are expenses that the IRS lets you subtract from your total income. They are beneficial because they allow you to reduce your taxable income, a monetary amount that determines the amount of taxes you owe.
It’s been estimated that individual income tax write-offs totaled $1.7 trillion in 2024. How much of that did you claim last year?
Unfortunately, tax deductions are often overlooked, causing taxpayers to miss out on hundreds or even thousands of dollars they could have kept for themselves. If you’re looking for how to lower taxable income and maximize your refund, learning about every potential tax deduction you might be able to claim is a smart strategy.
Adjusted Gross Income Tax Deductions
Many tax deductions reduce your adjusted gross income (AGI), known as above-the-line deductions, that you might be missing. AGI tax deductions are important because you can claim them regardless of whether you take the standard deduction or itemize your deductions.
- One example of tax deductions often overlooked is student loan interest, which applies to both private and federal loans used for eligible education expenses.
- Also, you may be able to deduct retirement contributions to traditional IRAs and self-employed retirement plans. Deductions can be made up to your annual limits.
- If you’re a K-12 teacher, you could get tax deductions for classroom supplies you bought that your school did not reimburse. Many teachers forget to include it and pay out of pocket for items outside the school’s budget.
- People who work for themselves can reduce their taxable income by deducting self-employed business-related expenses, such as software, advertising, phone and internet costs, and office supplies.
- If you work remotely, you can take a home office tax deduction for the space used exclusively for your business. The amount deducted can be based on square footage or actual expenses, such as rent and utilities.
- Other tax deductions often overlooked include health savings account (HSA) contributions that you make while enrolled in a high-deductible health plan.
- Tax deductions are available for alimony payments for divorces finalized before 2019. However, divorces finalized on or after January 1, 2019, don’t qualify for this tax write-off.
Itemized Deductions Often Forgotten
Another category of overlooked tax write-offs is itemized deductions, also known as below-the-line tax deductions. They offer opportunities for how to lower taxable income if your total itemized deductions are more than the standard deduction.
- Beyond large cash donations you give to nonprofits, you may be able to get tax write-offs for smaller charitable gifts like donations of furniture, clothing, or household goods. Make sure to keep receipts and itemized lists for proof of these charitable contributions.
- How much of your property taxes are tax deductible? Property taxes are below-the-line deductions that fall under the $10,000 State and Local Tax (SALT) deduction cap, or $5,000 if you’re married and filing separately. Your SALT tax deduction could include state and local income, property, and sales taxes.
- You may also be able to claim tax deductions for interest paid on mortgages for your primary and secondary residences. If you refinanced a mortgage, you may be able to deduct the points paid to obtain your new loan.
- If you paid state income tax when filing your return for the previous year, this could be deducted from your current year’s federal tax return.
- High medical bill costs that exceed 7.5% of your AGI for the year are among other tax deductions often overlooked. Eligible expenses may include surgeries, hospital stays, mental health therapy, prescriptions, insurance premiums, and medical-related travel.
Tax Write-Offs for Specific Life Situations
There are also ways to reduce taxable income based on your specific living circumstances. Many taxpayers have overlooked tax deductions because they aren’t aware that these tax-saving opportunities exist and apply to them.
- For example, you might qualify for moving expenses as an active-duty military member. Active military members who are ordered to relocate due to a permanent station change may qualify for a tax deduction based on the costs of transporting and storing household goods, as well as travel and lodging expenses incurred during the move and mileage driven for the relocation.
- Some people are called to serve on a jury and required by their employers to forfeit their jury pay because they received a regular salary during the jury service. Jury pay is often a small amount but among the tax deductions often overlooked.
Commonly Missed Tax Credits
In addition to overlooked tax deductions, there are also tax credits that many people miss while doing their taxes. Credits aren’t the same as deductions, but they can still offer dollar-for-dollar tax savings that benefit your financial situation.
One example is the child and dependent care credit, which may be relevant if you paid to take care of a child under the age of 13 or a spouse or other dependent who is unable to care for themselves. Commonly missed tax credits of this type include day camps and care that a friend or neighbor provides, just as long as they report that income.
Another valuable tax credit to be aware of is the Earned Income Tax Credit, which is especially beneficial for low- and moderate-income workers. You could receive hundreds or thousands of tax credit dollars if you meet income limits, with or without children.
Unfortunately, You Can’t Claim These Deductions
There’s no denying that tax law is complex and ever-changing. Therefore, there are many misconceptions and misunderstandings about deductions you can and cannot claim.
Here’s a list of things that, unfortunately, you are not allowed to claim as deductions on your taxes:
- Vehicle registration costs
- Vehicle inspection fees
- Employee business expenses
- Social security taxes
- Medicare taxes
- Home renovation costs, unless the upgrades were medically necessary
- Personal legal fees
- Gift taxes
Western Shamrock Can Help with Tax Deductions
To maximize your tax deductions and claim each and every one you’re legally eligible for, contact Western Shamrock for help.
In addition to our core personal loan business, we also provide tax preparation services that are fast, accurate, and reliable. With our numerous branches across multiple states, we can provide you with a free tax refund estimate to alleviate your tax preparation burden and give you peace of mind that your taxes are paid correctly.
Using a professional tax preparer, such as Western Shamrock, is one of the best ways to avoid trouble with the IRS and prevent tax deductions that are often overlooked.
Please call or visit your local Western Shamrock branch to learn more about how we can help you with tax deductions. We’re available year-round for your tax prep needs and look forward to helping you figure out how to lower taxable income and retain more of your hard-earned money.
