Common Tax Deductions and Credits You Might Be Missing

Understanding Standard and Itemized Deductions

When filing your taxes, you have the option to take the standard deduction or itemize your deductions. The standard deduction is a flat amount that reduces your taxable income. Its value varies based on your filing status (e.g., single, married filing jointly, head of household). For instance, in 2024, single filers may claim a standard deduction of $14,600.

Itemizing deductions involves listing eligible expenses, such as certain medical expenses, mortgage interest, and charitable contributions. If your itemized deductions exceed the standard deduction amount, it’s generally beneficial to itemize.

Common Overlooked Deductions and Credits

1. State and Local Taxes (SALT) Deduction

If you choose to itemize, you can deduct certain state and local taxes, but there’s a combined limit of $10,000 ($5,000 if married filing separately). This includes either state and local income taxes or sales taxes—not both. Taxpayers who made significant purchases or live in states without income tax might benefit from deducting sales tax instead.

2. Charitable Contributions

Donations to qualified charitable organizations are deductible if you itemize. This includes not only cash donations but also out-of-pocket expenses incurred during volunteer work, such as mileage (at 14 cents per mile), parking fees, and tolls. Ensure you keep detailed records and receipts for these expenses.

3. Student Loan Interest Deduction

You can deduct up to $2,500 of student loan interest paid during the year. This is an above-the-line deduction, meaning it’s available even if you don’t itemize. It’s particularly beneficial for recent graduates starting in their careers.

4. Medical Expenses

Medical expenses exceeding 7.5% of your adjusted gross income (AGI) are deductible if you itemize. This includes costs like nursing home care for a relative with a chronic illness, prescriptions, and certain medical equipment. Keep in mind that only the amount above the 7.5% threshold is deductible.

5. Gambling Losses

Gambling losses are deductible to the extent of your gambling winnings if you itemize deductions. This means you can offset your winnings by reporting losses, but you cannot deduct more than you won. Detailed records of wins and losses are essential.

6. Mortgage Points Deduction

If you’ve bought or refinanced a home, you may have paid mortgage points to secure a lower interest rate. These points are generally deductible. If you refinance with a different lender, you can deduct any leftover points from the previous loan.

7. Retirement Savings Contributions Credit (Saver’s Credit)

The Saver’s Credit is designed to help low- to moderate-income taxpayers save for retirement. You may be eligible for a credit of up to $1,000 ($2,000 if married filing jointly) for contributions to a qualifying retirement account, such as an IRA or 401(k). The credit rate ranges from 10% to 50% of your contribution, depending on your AGI.

8. Child and Dependent Care Credit

This credit is available to taxpayers who pay for childcare (or care for a disabled dependent) to work or look for work. You can claim up to 35% of qualifying expenses, with a maximum of $3,000 for one dependent or $6,000 for two or more. Qualifying expenses include daycare, preschool, and certain summer camps.

9. Earned Income Tax Credit (EITC)

The EITC is a refundable credit for low- to moderate-income working individuals and families. The credit amount varies based on filing status, income, and number of qualifying children. Many eligible taxpayers miss out on this credit each year, so it’s important to check your eligibility.

10. Home Office Deduction

If you’re self-employed and use part of your home exclusively for business, you may qualify for the home office deduction. This can include a portion of rent or mortgage interest, utilities, and insurance. The space must be used regularly and exclusively for business purposes.

Specific Deductions for Certain Taxpayers

Active-Duty Military Moving Expenses

While moving expenses are no longer deductible for most taxpayers, active-duty military members can still deduct unreimbursed moving expenses due to a permanent change of station. Eligible expenses include transportation, lodging, and the cost of moving household goods and personal effects.

Additional Tax Credits

Child Tax Credit

You may be eligible for a credit of up to $2,000 per qualifying child under the age of 17. The Child Tax Credit directly reduces your tax liability and is partially refundable, meaning you could receive a refund even if you owe no tax.

Education Credits

Education credits, such as the American Opportunity Tax Credit and the Lifetime Learning Credit, can help offset the cost of higher education by reducing the amount of tax owed. These credits cover qualified education expenses for an eligible student. Review the IRS guidelines to determine your eligibility and maximize these credits.

Conclusion

Taking advantage of all the deductions and credits available to you can significantly reduce your tax bill or increase your refund. It’s essential to stay informed about tax law changes and carefully review your financial situation each year. Consider consulting a tax professional or utilizing reputable tax software to ensure you’re not missing out on valuable tax benefits. Remember, the more proactive and organized you are with your taxes, the better equipped you’ll be to keep more of your hard-earned money.