How to Take Advantage of Tax Deductions You Might Be Missing

Tax season can be daunting, but knowing you're maximizing your deductions can make the process much easier – and potentially save you a significant amount of money. Many people overlook common tax deductions, leaving money on the table. This post will explore several deductions you might be missing and how to claim them. Let’s get started!

1. Traditional IRA Contributions (Especially for Self-Employed)

What it is: Contributions to a Traditional IRA can be tax-deductible, even if you're not covered by a retirement plan at work.
How it works: The deduction reduces your taxable income for the year.
Key Consideration: The deduction is limited if you (or your spouse) are covered by a retirement plan at work. In 2020, the maximum deduction was $6,000 (or$ 7,000 if age 50 or older).
Resources: IRS Publication 590-A - Retirement Plan Seminars.

2. Student Loan Interest Deduction

What it is: You can deduct interest paid on qualified student loans, up to a certain limit.
How it works: This directly reduces your taxable income.
Key Consideration: The deduction is phased out based on your modified adjusted gross income (MAGI). For 2020, the maximum deduction was $2,500.
Resources: IRS Publication 970 - Tax Benefits for Education.

3. Charitable Contributions – More Than Just Cash

What it is: You can deduct donations to qualified charities. This goes way beyond just writing a check.
How it works: You can deduct the fair market value of non-cash contributions (clothing, household items, etc.). You also get a deduction for cash donations.
Key Consideration: Keep accurate records of all charitable contributions. For non-cash contributions, get a receipt from the charity. You must itemize deductions to claim these.
Resources: IRS Publication 526 - Character of Contributions.

4. Medical Expenses (Itemizing Required)

What it is: You can deduct unreimbursed medical expenses exceeding 7.5% of your adjusted gross income (AGI).
How it works: These expenses are deducted from your adjusted gross income.
Key Consideration: This deduction only applies if you itemize deductions instead of taking the standard deduction.
Resources: IRS Publication 502 – Medical and Dental Expenses.

5. Home Office Deduction (For Self-Employed)

What it is: If you use a portion of your home exclusively and regularly for business purposes, you may be able to deduct expenses related to that space.
How it works: This can include expenses like mortgage interest, rent, utilities, and a portion of your equipment costs.
Key Consideration: Strict requirements apply – you must use the space exclusively for business.
Resources: IRS Publication 587 – Business Use of Your Home.

6. State and Local Taxes (SALT) Deduction

What it is: You can deduct state and local income or sales taxes (but not property taxes).
How it works: This is capped at $10,000 per household.
Key Consideration: This deduction is particularly important in states with high income or sales taxes.

Important Disclaimer: Tax laws are complex and subject to change. This information is for general guidance only and does not constitute professional tax advice. Always consult with a qualified tax advisor to discuss your specific situation.

Resources to Explore Further: