Common Overlooked Tax Deductions

Tax season can be a stressful time for many, with the complex jargon and numerous forms to fill. However, it can also be an opportunity to save money if you know where to look. This blog post aims to shed light on some of the most commonly overlooked tax deductions. By understanding these deductions, you can potentially reduce your tax liability and keep more of your hard-earned money.

Home Office Deductions

A significant number of people have started working from home due to the ongoing pandemic. If you're one of them, you might be eligible for home office deductions. This deduction applies if you use part of your home exclusively and regularly for your business.

The IRS allows two methods for calculating this deduction: the simplified option and the regular method. The simplified option lets you deduct $5 per square foot of your home used for business, up to 300 square feet. The regular method involves more detailed record-keeping but could result in a larger deduction.

Remember, you can't double-dip. If you're an employee and your employer reimburses you for your home office expenses, you can't claim the home office deduction.

Medical and Dental Expenses

Medical expenses can take a significant chunk out of your budget, especially if you or a family member has a chronic illness. The IRS allows you to deduct unreimbursed medical expenses that exceed 7.5% of your adjusted gross income (AGI).

This deduction covers a wide range of medical expenses, including payments for diagnosis, cure, mitigation, treatment, or prevention of disease. It also covers the costs of equipment, supplies, and diagnostic devices needed for these purposes.

Don't overlook the fact that you can also deduct travel costs related to medical care. This includes public transportation, ambulance service, tolls, and parking fees. If you use your car for medical travel, you can deduct the actual costs or use the standard mileage rate for medical expenses.

State Sales Tax

If you live in a state that doesn't impose an income tax, you might be overlooking a significant deduction: state sales tax. You have the option of deducting state and local sales taxes or state and local income taxes off your federal income tax.

For big-ticket items like a car or boat, this deduction can be particularly beneficial. The IRS provides tables to help you figure out the deduction amount. However, keep your receipts throughout the year if you want to claim a larger deduction.

Student Loan Interest Paid by Parents

If your parents are paying back your student loans, the IRS treats the money as if they gave it to their child, who then paid the debt. As long as you are not claimed as a dependent, you can deduct up to $2,500 of student loan interest paid by your parents.

This is an often-overlooked tax deduction because the lender often sends the Form 1098-E (Student Loan Interest Statement) to the child, and it's easy to miss this deduction if you're not aware of it.

Charitable Contributions

Charitable contributions are a well-known deduction, but many people overlook the details that can boost their tax savings. You can deduct the fair market value of any goods you donate, and if you volunteer for a charity, you can deduct your transportation costs.

If you bake a cake for a charity fundraiser, for example, you can deduct the cost of the ingredients you used to bake the cake. However, you can't deduct your time or services.

Job Hunting Costs

If you were looking for a job in the same line of work last year, you might be able to deduct job-hunting costs as miscellaneous expenses if you itemize deductions. This can include expenses like travel, resume preparation fees, and job placement agency fees.

However, the catch is that these expenses must exceed 2% of your adjusted gross income to be deductible. Also, you can't deduct these expenses if you're looking for a job for the first time.

Wrapping Up Overlooked Tax Deductions

Navigating the world of taxes can be a daunting task, but being aware of these commonly overlooked tax deductions can help you maximize your savings. Remember, every little bit helps. So, take the time to understand these deductions and consult with a tax professional if needed. It could make a significant difference in your tax bill.