No one likes having a hefty tax bill come April, but even worse is having a bill that could have been smaller if you’d only known what to look for. You’re probably familiar with deductions for traditional IRA contributions, mortgage points and medical deductions, but those are only a few of the saving opportunities available. Here are 12 of the most frequently overlooked deductions that could help save you money on your taxes if you itemize.
1. Charitable Contributions
Doing things from the good of your heart just might do some good for your wallet, too. If you make out-of-pocket contributions to charitable organizations, you might be able to deduct them from your taxes. These contributions can include:
Purchases for in-kind items (like ingredients for meals for a soup kitchen, school supplies for a nonprofit, etc.)
Mileage you put on your personal vehicle (at a rate of 14 cents per mile), plus parking or tolls, accrued while travelling in support of the organization
If you plan to claim these deductions, make sure you keep receipts for any and all items you wish to claim. To claim contributions over $250, you’ll also want written acknowledgement from the organization.
2. Jury Duty Fees Paid to Your Employer
When called to perform your civic duty as a juror, you collect a jury fee for the time you serve. These fees are taxable. But, if your employer pays your full salary while you serve and you reimburse them the jury fees you collected, you can deduct those fees.
3. State Tax Paid the Previous Tax Year
If you owed (and paid!) additional state income tax when you filed last year’s taxes, you can deduct that amount on your federal return for this year’s taxes. You can deduct the amount you paid above and beyond what was withheld from your paychecks up to $10,000 per year, or $5,000 if you’re married and filing separately.
4. Travel Expenses for Military Reservists
If you serve in the National Guard or reserves (thank you for your service!), you may be able to deduct travel expenses incurred to attend training, drills or meetings. To qualify, the travel must be at least 100 miles from your home and you must spend at least one night away from home. The deduction includes the full cost of lodging, half the cost of meals, parking, tolls and mileage (at a rate of 56 cents per mile) when you drive your own vehicle. You do not have to itemize to take advantage of this deduction.
5. Private School Tuition (K-12)
Many parents opt to save for their child’s tuition using a 529 savings plan. Although people often think of it as a college savings plan, you can use it for secondary education as well. If your child attends a private school for kindergarten to 12th grade, you can take a tax-free distribution up to $10,000 per student per year to pay for the tuition.
6. American Opportunity Credit
This tax break can provide college students with a credit of up to $2,500 per year. You can claim credits for qualifying expenses for 100% of the first $2,000 you spend and 25% of the next $2,000 — for a total of $2,500. To claim this benefit, you must have an adjusted gross income (AGI) of $80,000 or less ($160,000 or less if you’re married filing jointly).
7. Student-Loan Interest Payments by Third Parties
This deduction allows students to claim up to $2,500 of the interest paid off on their student loans — even if they didn’t make the payment themselves — each year. However, there are a few conditions they must meet to claim this deduction. Students can’t be claimed as dependents on anyone else’s tax return and the loan must be in their name. In other words, the student must be legally responsible for paying off the loan to take advantage of this deduction.
8. Continuing Education Credits
The lifetime learning credit allows adult students of all ages to benefit from furthering their education. Adults can claim a credit of up to $2,000 per year — 20% of their tuition up to $10,000 — for any post-secondary courses they take to build their professional skills. This credit applies to classes taken at community colleges, vocational schools and other colleges. To claim this benefit, your AGI cannot exceed $80,000 for individuals (or $160,000 if you’re married filing jointly).
9. Mortgage Refinancing Points
When you buy a house, you can deduct the points you pay on your mortgage all at once. It’s a big perk for new homeowners. But when you’re refinancing a mortgage, you can claim a deduction, too. The refinancing deduction is not as dramatic because, instead of deducting all the points in one fell swoop, you claim the points over the course of the loan period. For example, if you have a 30-year mortgage, you can deduct 1/30th of the points each year.
When you pay off a mortgage loan, whether from selling your home or refinancing, you can deduct all the points you have yet to claim. The only exception is if you refinance with the same lender. In that case, you won’t qualify.
10. Mortgage Insurance Premiums
If you have a home loan that originated after 2006 and you itemize your deductions, you can deduct the premiums you pay on private mortgage insurance. However, there are some limitations. If your AGI is over $100,000, you can’t claim as much. If your AGI exceeds $109,000, you won’t qualify at all.
Note: This deduction is due to expire next year, so it currently applies to your 2021 taxes. If the deduction is extended, you may be able to claim it on future tax years.
11. Social Security Taxes
Social Security and Medicare are taxed at 15.3% of an employee’s pay. For a typical employee-employer relationship, each party pays half — 7.65%. If you’re self-employed, you have to assume both roles and pay the entire amount of 15.3%. However, you can deduct 7.65% from your individual taxes. Even better, you do not have to itemize to take advantage of this deduction.
12. Medicare Premium Deductions
If you’re self-employed and you qualify for Medicare, you can deduct your premiums for Part B and Part D, plus costs for medigap policies or Medicare Advantage plans. However, you can’t claim this deduction for any months you were covered (or eligible for coverage) by another employer (either your spouse’s or yours if your self-employment gig is a side hustle).
If you have questions about how these deductions or other tax laws might affect you, please contact our office. Our specialists will be glad to talk through your unique situation.
At Sink, Gordon & Associates LLP, we have a variety of positions, including Certified Public Accountants (CPAs), small business accountants, and administrative staff. If you’re looking for employment opportunities in accounting, please browse our job openings and related qualifications, responsibilities, and benefits below.