Overlooked Tax Deductions

Tax season is upon us, and taxpayers are diligently gathering W-2s, receipts and preparing their tax returns. And just like every other year, according to the IRS, millions of people will miss out on deductions to which they are eligible, that could significantly boost tax refunds. These hidden gems could substantially reduce tax liabilities putting more money back in peoples’ pockets. Here are the Top 10 overlooked tax deductions to boost refunds.

1. State and Local Taxes (SALT): The IRS allows a deduction of up to $10,000 of state and local taxes, including income taxes, sales taxes, and property taxes. Remember, this is a combined limit, so if a state does not have income tax, you can deduct the full amount of your sales and property taxes, up to the $10,000 limit.

2. Charitable Contributions: Donating to worthy causes is not only good for your community, it may also be good for your taxes. People can deduct cash donations, subject to AGI limits, made to qualified charities, as well as the fair market value of donated goods. Long-term capital assets may be deducted at fair market value; however, short-term capital assets may only be deductible using the basis of the asset. Keep detailed records of contributions, including the name of the charity, the date and amount of the donation, and a receipt for any non-cash donations.

3. Student Loan Interest: Grappling with student loan debt? There is a light at the end of the tunnel. Deductions of up to $2,500 of the interest paid on qualified student loans during the tax year may be taken. This deduction is subject to phase out limits for each filing status.

4. Home Office Expenses: Taxpayers with their own business who regularly use a dedicated space in a home for work purposes may be eligible to deduct a portion of their expenses for the home office. This includes expenses such as rent, mortgage interest, utilities, and depreciation on furniture and equipment. Remember, the home office must be used exclusively and regularly for your business work, and taxpayers must meet certain IRS criteria to qualify for this deduction. Unfortunately, this deduction is not available to W-2 employees working remotely for their employer.

5. Retirement Savings Contributions: Contributing to a traditional IRA or employer-sponsored retirement plan, such as a traditional 401(k), not only reduces taxable income for the year in which the contribution is made, it also helps build a nest egg for the future. The maximum IRA contribution limit for 2023 is $6,500 ($7,500 for those aged 50 and over), and the maximum 401(k) contribution limit is $22,500 ($30,000 for those aged 50 and over). For tax year 2024, these limits will increase to $7,000 ($8,000 for those over 50) for a traditional IRA and $23,000 ($30,500 for those over 50) for a traditional 401(k) plan. CAUTION:  consult your tax preparer as these deductions may not apply to Roth based contribution plans.

6. Medical Expenses: If unreimbursed medical and dental expenses exceed 7.5% of your adjusted gross income (AGI), they can be deducted on tax returns. These expenses include doctor bills, prescription drugs, hospital costs, mileage to/from your doctors, and more. Keep meticulous records of medical related expenses throughout the year to ensure you take advantage of this valuable deduction.

7. Moving Expenses: For active-duty military personnel, moving expenses incurred due to a military order are deductible. This includes the costs of packing, shipping, and temporary storage of belongings, as well as travel expenses for a military member and family.

8. Educator Expenses: Educators can deduct up to $300 of out-of-pocket expenses for classroom supplies and professional development activities. This deduction is available to teachers, instructors, counselors, and aides working in kindergarten through grade 12 public or private schools.

9. Health Insurance Premiums: If you are self-employed and pay for your own health insurance premiums, these costs can be deducted from your tax returns. This deduction is also available to individuals who receive health insurance through the Marketplace and who qualify for a premium tax credit, subject to income limits.

10. Miscellaneous Itemized Deductions: While the standard deduction has increased in recent years, itemizing deductions might still be beneficial if the total itemized deductions exceed the standard deduction amount. Some common miscellaneous deductions include unreimbursed employee business expenses, investment fees, and gambling losses (up to the amount of your winnings).

Please note this is not an exhaustive list, and tax laws can be complex. Best practice is to consult with a tax professional to ensure you are properly taking advantage of all eligible deductions and credits. By uncovering these hidden gems, taxpayers can maximize tax refunds and keep more of their hard-earned money.

Tax Tip:  Stay organized throughout the tax year by keeping detailed records of all income, expenses, and receipts. This will make your tax filing much easier and ensure you take advantage of all eligible deductions.

At RJS LAW, our team of experienced tax attorneys advise clients on a wide range of tax issues including audits and collections. If you have tax questions or tax issues arising from your tax filings, or any other area of taxation, please call our office at 619-595-1655 for a free consultation about overlooked tax deductions.

Written by Devon J. Arabo, Esq., LL.M.