Win Extra Savings With Deductions You Didn’t Know You Had
When tax season rolls around, most people dread the idea of itemizing deductions. It sounds time-consuming and complicated—but what if you didn’t have to? Here’s a treasure trove of lesser-known deductions available to almost anyone, with no itemizing required.
Student Loan Interest
Paying off student loans usually feels like a never-ending task, but you can claim $2,500 of the interest paid on qualifying loans annually. However, you must be the one repaying the loan, not a co-signer.
BC NDP, CC BY 2.0, Wikimedia Commons
Adoption Credit
You can claim a tax credit for qualified adoption expenses, which reduces your tax liability dollar-for-dollar. This credit is not based on itemization and can be claimed directly on your Form 1040. Nevertheless, the expenses must meet specific requirements, and the credit is subject to income limits.
Domestic Production Activities Deduction
DPAD is available for certain qualifying businesses involved in manufacturing, production, or some types of construction. Companies can deduct a percentage of their qualified production activities income as an above-the-line deduction that doesn’t require itemizing.
Jschnalzer,, CC BY-SA 3.0, Wikimedia Commons
Reinvested Dividends
You may have already paid taxes on that income if you’ve automatically reinvested dividends from mutual funds or stocks. When you sell those investments, factoring in the reinvested dividends can reduce your taxable capital gains.
Self-Employment Tax
Self-employed professionals are responsible for the employer and employee part of Medicare and Social Security taxes. To ease the burden, you can deduct the employer-equivalent portion (50%) of your self-employment tax from your taxable income. It’s an above-the-line deduction, and you don’t need to itemize.
Education Costs
Learning never goes out of style—and the IRS agrees! Certain education costs, like tuition, books, and fees, may qualify for deductions even if you’re not pursuing a degree. You could deduct up to $4,000 annually, helping to ease the financial burden of skill-building or professional development.
Contributions To An ABLE Account
Achieving a Better Life Experience accounts help people with disabilities and their families to save for disability-related expenses. Payments to these accounts decrease your taxable income in some states as you claim this deduction on your tax return.
Contract Labor
Do you run a small business? Money paid to independent contractors for services is deductible as business expenses. This can lower your taxable business income, which you can report on your Schedule C or business tax return.
Certain Disaster Losses
The silver lining to some disasters is that losses you suffered in a federally declared disaster area can be deducted. This applies to the loss not covered by insurance and can help you recover from some unexpected financial burdens.
Brian Stansberry, CC BY 3.0, Wikimedia Commons
Contributions To A 529 College Savings Plan
Contributions to a 529 plan, designed to save for education expenses, are often tax-deductible at the state level. While there’s no federal deduction, many states offer deductions or credits for contributions, which makes it easier to save for your child’s or grandchild’s education.
Self-Employed Health Insurance
If you’re self-employed, you can deduct the cost of health insurance premiums for yourself and all your dependents. You must have a net profit from self-employment to claim this deduction. Oh, one more thing. This deduction cannot exceed that income.
Work-Related Car Expenses
Those who use their personal vehicles for work purposes other than commuting can actually save on their taxes. The actual expenses include gas, maintenance, or depreciation expenses. You can also use the standard mileage rate.
Tuition And Fees Deduction
Use Form 8917 to calculate your eligible expenses if you or your dependent attend higher education and report the deduction on your Form 1040. This deduction helps make college or other post-secondary education more affordable.
Health Savings Account Contributions
Payments to an HSA are tax-deductible, even if made through payroll deductions. The money is tax-free; withdrawals for qualified medical expenses are also tax-free, offering triple tax benefits. Make sure you report contributions made outside of payroll on Form 8889.
Home Office Expenses
Self-employed professionals or those who run a side business from home can be eligible for additional deductions. A home office deduction allows you to claim some household expenses, such as rent, utilities, and internet, if you use a designated space exclusively for work.
Retirement Plan Contributions
Contributing to retirement plans like a Traditional IRA up to $6,500 or $7,500 if you’re 50+ helps secure your future and reduces your taxable income today. These deductions allow you to build your nest egg while lowering your tax bill.
Jury Duty Pay Given To Your Employer
If your employer continues paying your regular wages while you serve on jury duty, they may require you to turn over the jury duty pay you receive. You can deduct the jury duty pay given to your employer to avoid being taxed on money you didn’t keep.
Penalty On Early Withdrawal Of Savings
You can safely deduct money you didn’t keep. This applies to the fees you pay for withdrawing money early from a certificate of deposit or similar savings account. The deduction will be listed on Form 1099-INT or 1099-OID provided by your bank or financial institution.
Student Loan Canceled Due To Death Or Disability
Some student loans are forgiven because of death or permanent disability. The amount discharged is typically excluded from taxable income. You won’t owe taxes on what might otherwise have been considered taxable debt cancellation.
Alimony Payments
Those paying alimony under a divorce agreement finalized before January 2019 are eligible for tax deductions. Report the amount spent on Form 1040, but note that this doesn’t apply to child support and agreements finalized after 2018.
Prepaid Expenses
All upfront expenses, including rent, subscriptions, and money paid for training events, can be tax-deductible if you’re self-employed. However, they should be related to your business and not personal needs. Keep all records to ensure compliance with IRS guidelines.
Business Meals
Meal expenses during business meetings or while entertaining clients can be partially deductible. This deduction is particularly beneficial for self-employed individuals, freelancers, and business owners if you report it on Schedule C for self-employed individuals or your business tax return.
Educator Expense Deduction
Did you know you can deduct up to $300 of out-of-pocket expenses for classroom supplies if you are a teacher? This also applies to any expenses related to professional development and other materials that benefit your students.
Bank Expenses
Fees related to maintaining a business bank account, processing payments, or using financial services can be deducted as business expenses. These include monthly account fees, wire transfers, and credit card fees. The costs can add up, so claiming them reduces your taxable business income.
Department of Foreign Affairs and Trade, CC BY 4.0, Wikimedia Commons
Expenses For Reservists And National Guard Members
If you’re a National Guard or military reserve member, you can deduct travel expenses for duties that take you more than 100 miles from home. This includes lodging, meals, and mileage as long as you keep detailed records.
