8 Tax Deductions You Are Probably Missing Out On This Year!

If you are anything like me, you dread tax season. It is beyond stressful, especially when you typically wind up owing taxes each year. That said, many taxpayers miss out on valuable deductions simply because they aren’t aware that they exist. This is where tax planning comes into play. You can create a strategy to minimize your tax liabilities while continuing to comply with the law. So, what is tax planning and what do you need to know to make the most of your money this year? Here are eight deductions that could make a huge difference.
1. Student Loan Interest Deduction
Although I don’t have any student loans, my wife does. Paying them can often feel overwhelming, but it can help you qualify for a deduction on your taxes. In fact, you can deduct up to $2,500 of interest paid on qualified student loans, even if you don’t itemize. This deduction applies whether you are the primary borrower or a co-signer. Remember, income limits apply, so check eligibility if you earn above a certain threshold. It’s also worth noting that your lender should provide a 1098-E form to help you claim this deduction.
2. Charitable Contributions
Donations to qualified charities are deductible, but many people don’t track smaller contributions. Whether you give cash, donate items, or volunteer with mileage expenses, all can add up. Keep receipts or acknowledgment letters from the organizations to validate your claims. Did you know mileage for charitable work is deductible at a standard rate? Many taxpayers also forget about stock or property donations, which can have larger tax benefits.
3. Medical Expenses
Unfortunately, last year we spent a lot of money on healthcare. My wife had a lot of medical issues that needed to be addressed. However, we should be able to get a decent write-off when it’s time to file our taxes. If your medical expenses exceed 7.5% of your adjusted gross income (AGI), they might qualify as a deduction. Expenses for dental work, surgery, prescriptions, therapy, mental health treatments, long-term care insurance premiums, and even travel for medical care can be included. Make sure you track all eligible costs throughout the year for accurate reporting.
4. Home Office Deduction
With remote work on the rise, the home office deduction is more relevant than ever. If you work from home and have a dedicated workspace, you may qualify. The deduction covers a percentage of rent, utilities, and even repairs. Self-employed individuals and gig workers are the primary beneficiaries, but employees generally cannot claim this. Use the simplified method if calculating actual expenses feels overwhelming.
5. Educator Expenses
Teachers and educators often spend their own money on classroom supplies. Fortunately, they can deduct up to $300 for unreimbursed expenses, including books, software, and COVID-related protective items. This deduction applies to primary and secondary school educators working at least 900 hours annually. Married educators filing jointly can claim up to $600 if both meet the criteria. Don’t forget about professional development courses that enhance your teaching skills.
6. Retirement Contributions
Contributing to a retirement plan like an IRA or 401(k) offers dual benefits: saving for your future and reducing taxable income. For 2023, you can contribute up to $6,500 to an IRA or $7,500 if you’re over 50. Contributions to traditional IRAs may be deductible, depending on your income and employer coverage. Self-employed individuals can take advantage of SEP IRAs or Solo 401(k)s for even larger contributions. Late contributions for the prior year can still reduce your taxable income if made before the filing deadline.
7. State and Local Taxes (SALT)
The SALT deduction allows taxpayers to deduct up to $10,000 in state and local taxes paid. This includes property taxes, income taxes, or sales taxes if you choose the latter. Taxpayers who itemize deductions on Schedule A are the primary beneficiaries. Be mindful of state-specific rules that may further influence this deduction. While the SALT cap limits the deduction, strategic planning can help maximize its impact.
8. Energy-Efficient Home Improvements
Upgrading your home for energy efficiency can lead to significant tax credits and deductions. Installing solar panels, energy-efficient windows, or HVAC systems are just a few examples. The federal tax credit for solar energy systems is 30% of the installation cost. Other improvements like insulation or doors may qualify for smaller deductions. Keep detailed records, including receipts and certifications for eligibility.
Take Control with Smart Tax Planning
Neglecting to claim all of your deductions could cost you hundreds and even thousands of dollars every year. Before you file, make sure you understand the ins and outs of tax planning and know how you can minimize your tax burden effectively. Start gathering all of the information you need now so that tax season goes smoothly.
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Drew Blankenship is a former Porsche technician who writes and develops content full-time. He lives in North Carolina, where he enjoys spending time with his wife and two children. While Drew no longer gets his hands dirty modifying Porsches, he still loves motorsport and avidly watches Formula 1.