Tax season can be a stressful time for many Americans, but it’s also an opportunity to reduce your tax burden by taking advantage of deductions. While most people are familiar with common deductions like mortgage interest and charitable contributions, there are several lesser-known write-offs that could save you money. Let’s explore some of these often-overlooked tax deductions that individuals can use to maximize their tax savings.
Home Office Deductions
If you work from home, you might be eligible for home office deductions. This applies to both self-employed individuals and employees who use a portion of their home exclusively for work. You can deduct a percentage of your rent or mortgage interest, utilities, and maintenance costs based on the square footage of your home office.
For example, if your home office takes up 10% of your home’s total square footage, you can deduct 10% of your eligible home expenses. It’s important to keep accurate records and measurements to support your claim.
Health Insurance Premiums
Self-employed individuals can deduct their health insurance premiums, including dental and long-term care insurance. This deduction is taken on the front page of Form 1040, which means it reduces your adjusted gross income (AGI). A lower AGI can potentially qualify you for other tax breaks that phase out at higher income levels.
Learn more about insurance and its impact on your finances
State Sales Tax Deduction
You have the option to deduct either state and local income taxes or state and local sales taxes on your federal tax return. For those living in states with no income tax, the sales tax deduction can be particularly valuable. Even if you live in a state with income tax, you might benefit more from the sales tax deduction if you made large purchases during the year.
Job Search Expenses
If you’re looking for a job in your current field, you may be able to deduct certain job search expenses. These can include costs for resume preparation, travel expenses related to job interviews, and employment agency fees. However, this deduction is only available if you itemize and if your total miscellaneous deductions exceed 2% of your AGI.
Moving Expenses for Military Personnel
While the Tax Cuts and Jobs Act eliminated the moving expense deduction for most taxpayers, active-duty military members can still claim this deduction when relocating due to military orders. Eligible expenses include transportation, storage, and travel costs associated with the move.
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Student Loan Interest Paid by Parents
If you’re a parent who has helped your child pay off student loans, you might be eligible for a tax break. Even though the loan is in your child’s name, you can claim the student loan interest deduction if you made the payments, as long as you’re not claimed as a dependent on someone else’s tax return.
Energy-Efficient Home Improvements
Homeowners who make energy-efficient improvements to their primary residence may qualify for tax credits. These can include installing solar panels, wind turbines, or geothermal heat pumps. The credit amount varies depending on the type of improvement and when it was installed.
Educator Expenses
K-12 teachers and other eligible educators can deduct up to $250 for unreimbursed expenses on classroom supplies. This is an “above-the-line” deduction, meaning you don’t have to itemize to claim it. Eligible expenses include books, supplies, computer equipment, and supplementary materials used in the classroom.
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Gambling Losses
While it’s not advisable to rely on gambling for income, if you do engage in legal gambling activities, you can deduct your losses up to the amount of your winnings. This deduction is only available if you itemize, and you must keep detailed records of both your winnings and losses.
Refinancing Points
If you refinanced your mortgage, you may be able to deduct the points paid over the life of the loan. While points on an original mortgage are fully deductible in the year paid, refinancing points must be spread out over the loan term. Don’t forget to claim this deduction each year.
Conclusion
Taking advantage of these lesser-known tax deductions can help reduce your tax liability and potentially increase your refund. However, tax laws are complex and subject to change, so it’s always a good idea to consult with a tax professional or use reputable tax preparation software to ensure you’re claiming all the deductions you’re entitled to.
Remember, proper documentation is key when claiming any deduction. Keep thorough records of your expenses throughout the year to make tax time easier and to support your claims in case of an audit.
By being aware of these often-overlooked deductions and planning ahead, you can make the most of your tax return and keep more money in your pocket.
Learn more about the benefits of itemizing tax deductions
Frequently Asked Questions
What are some lesser-known tax deductions for individuals?
Some lesser-known tax deductions include home office deductions, health insurance premiums for self-employed individuals, state sales tax deductions, job search expenses, and energy-efficient home improvements. Military personnel can also deduct moving expenses, and educators can claim deductions for classroom supplies.
Can I deduct my home office expenses if I work from home?
Yes, if you use a portion of your home exclusively for work, you may be eligible for home office deductions. This applies to both self-employed individuals and employees. You can deduct a percentage of your rent or mortgage interest, utilities, and maintenance costs based on the square footage of your home office.
Are student loan interest payments tax-deductible for parents?
Parents who help pay off their child’s student loans may be eligible for the student loan interest deduction, even if the loan is in the child’s name. This is possible as long as the parent is not claimed as a dependent on someone else’s tax return.
Can I deduct my gambling losses on my tax return?
You can deduct gambling losses up to the amount of your winnings, but only if you itemize your deductions. It’s crucial to keep detailed records of both your winnings and losses to claim this deduction accurately.
Are there any tax deductions available for making energy-efficient home improvements?
Yes, homeowners who make energy-efficient improvements to their primary residence may qualify for tax credits. These can include installing solar panels, wind turbines, or geothermal heat pumps. The credit amount varies depending on the type of improvement and when it was installed.
