Common overlooked tax deductions you need to know
Filing a tax return is more enjoyable if you view taxes as a game. However, make no mistake about it — this game has high stakes. You need to maximize every deduction possible to save the most money if you want to win.
Unfortunately, most taxpayers tend to overlook or forget about certain deductions. As a result, they lose out on vital opportunities to save money where they can, while the IRS takes the victory. To help you avoid a similar outcome, we list some of the most commonly overlooked tax deductions.
1. Charitable Donations and Gifts
Let’s start with charitable donations. While most people are aware that significant contributions can be deducted on a tax return, smaller donations and gifts typically slip between the cracks. Little expenses might not seem like very much when viewed in isolation, but they add up.
Whether it’s food purchased for a charity’s benefit concert, clothes donated to Goodwill, or a small gift to a missionary from your church, these small amounts count. Keep receipts and be meticulous about recording these expenses. (Note: With the introduction of the Tax Cuts and Jobs Act, the standard deduction has increased from $6,500 to $12,000 for individuals and $13,000 to $24,000 for a married couple filing jointly).
Your accountant can help you determine whether you should take the standard deduction or itemized deductions. Until you know, it’s best to keep all records on hand.
2. Mileage for Work, Medical, and Charity
If you use your car for business purposes, have driven for moving or medical purposes, volunteer for a church or charitable organization, and operate your motor vehicle, you can deduct mileage.
Standard mileage rates for the 2022 tax year are as follows: 58.5 cents per mile for business miles driven, 18 cents per mile for medical or moving purposes, and 14 cents per mile for charitable organizations or service work.
The easiest way to track these miles is to use a mileage app that records your driving logs and produces a simple spreadsheet that you can use to support your deduction.
3. Gambling Losses
As gambling becomes increasingly legalized throughout the United States, more Americans must realize they can deduct certain gambling losses (with restrictions). The first key is that you can only take gambling loss deductions if you itemize. Secondly, your deduction is limited to the number of gambling winnings you report on your taxable income.
Currently, deductible gambling losses include losses suffered at casinos and racetracks and non-winning lottery, bingo, and raffle tickets. For those planning to take this deduction, the IRS requires some pretty extensive documentation — including receipts and names and locations of the gambling establishments.
4. Childcare Credit
This one is technically a credit — which reduces your tax bill dollar for dollar — but we’ll throw it on the list anyway. After all, it’s one of the most commonly forgotten tax breaks.
On top of getting an automatic $2,000 tax credit per child, parents can also claim a childcare tax credit if they paid for childcare during the tax year. Depending on your income status, you can get between 20% to 35% (up to $3,000) for a child under the age of 13, an incapacitated parent or spouse, or another dependent.
5. Home-Related Expenses
Owning a home can get expensive. Thankfully, there are situations in which you can lower your taxable income through home-related expense deductions. Examples include Any expenses incurred in making your house more energy-efficient that can be deducted (up to $500). Similarly, 30% of the cost of new energy-efficient appliances can be deducted from taxes.
These expenses are tax-deductible if you paid to make your home safer — like removing lead paint or asbestos. If you refinanced, you could deduct the cost of points and the expenses related to the refinancing process. If you qualified for a mortgage credit certificate from a state or local government, you could deduct $2,000. These are just a few illustrations. Your accountant can help you determine if any of your home-related expenses qualify for a deduction.
6. Student Loan Interest
If you’re one of the millions of young Americans saddled with student loan debt, you get one tiny break. The interest paid on these student loans is tax-deductible. It’s also worth noting that it doesn’t matter who pays off the student loans.
If, for example, your parents paid down some of your student loans in the previous year, the IRS treats this money as a gift. You can claim the interest they paid on your taxes! (To be eligible, you can’t be claimed as your parents’ dependent. Additionally, the deduction is capped at $2,500.)
7. Job-Related Moving Expenses
Did you incur expenses looking for a job? Did you have to move because of a transfer or change in employment? Any money spent on transportation, food, lodging, resume printing, etc., can be deducted from your taxes.
Any out-of-pocket expenses involved in these situations are also tax-deductible. Just make sure you keep meticulous records and receipts. (If your employer covers some of the costs, the portion they paid or reimbursed you for is not deductible on your tax return.)
8. Jury Payments Paid to Employer
When jury duty calls, you have no choice but to show up and await your fate. You should've received a small stipend if you were selected to serve on a jury. Today, it’s common for employers to continue paying an employee’s full salary while serving on the jury.
However, there’s a catch: The employee typically has to turn over their measly jury pay. The IRS still views the jury pay as your taxable income despite this. To help offset this, you can deduct 100% of the amount you gave to your employer.
9. Losses Due to Theft or Casualty
Any losses caused by vandalism, theft, fire, storm, other natural disasters, and boat and car accidents may be tax-deductible. There are a lot of caveats and requirements, but it’s worth looking into.
Generally speaking, the total amount of these losses must be greater than 10% of your adjusted gross income (AGI). In other words, if your AGI is $100,000, your total losses for the year will need to be greater than $10,000.
10. Certain Medical Expenses
In some instances, you can deduct out-of-pocket medical expenses. Most of the time, these expenses have to exceed 7.5% of your adjusted gross income on the year. You can even deduct home improvements that are completed for medical reasons. (Examples include wheelchair ramps, support bars, or lowering cabinets.)
Now, this may be a lot to remember. Just know that being mindful of all deductions you may have could mean the difference between a few hundred dollars and a few thousand on your next tax refund. However, an accountant may be able to find more areas for you to save money on your taxes. After all, they’re the ones with years of experience in the field and know all the ways you can take advantage of deductions. When in doubt, don’t be afraid to file your taxes with a Pro.