15 Overlooked Tax Deductions You Might Not Know About
The thought of tax season can fill most people with dread. It can be confusing, overwhelming, frustrating, and just not how you want to spend a chunk of your free time. But as annoying as it sometimes is, it's also very necessary, and when done right, it can result in a nice chunk of change being given back to you (spring shopping, anyone?). While it's tempting to hand everything over to a professional without a second glance, you should always be aware of valuable tax write-offs that could potentially save you hundreds or thousands of dollars when you file your tax return. For example, are you a freelancer or a teacher? Do you pay for child care? Are you paying off a student loan? These are all things that qualify as some of the most overlooked tax write-offs that people often forget. In order to correctly file your tax return this year so you get the best refund possible, here are 15 common write-offs you don't want to miss.
1. Child Care
If you have kids under the age of 13 and pay for child care while both you and your spouse work (or if one works and the other is a full-time student) or you work as a single parent, you can claim a child-care tax credit, which can be worth 20-35 percent of up to $3,000 in child-care expenses for one child or up to $6,000 for two or more children. These expenses can include day care, a nanny, summer day camp, and some before-and-after school programs. If you have a smaller income, you can get a larger credit, however, there is no maximum income limit.
2. State Sales Tax
This mostly applies to people who live in states that don't impose an income tax, so Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, and Wyoming. While people in states that do impose an income tax typically get a better deal when they choose the state and local income tax deduction, those in income-tax-free states get a better deal when they deduct state and local sales tax. To claim the sales-tax deduction, just use the IRS tables provided for your state on your tax return, as it's pretty straightforward. Or if you are super organized and have documented all of the sales tax you paid throughout the year, you can use that.
One thing to note is that if you recently made a large purchase, like a vehicle, boat, home, or airplane, you may add the sales tax you paid on those to the amount shown in the IRS table for your state, so be sure to check.
3. Out-of-Pocket Charitable Contributions
If you've been fortunate enough to make generous charitable donations this year, you can write off the out-of-pocket costs that added up to make these donations possible. While this obviously includes cash donations, it also includes smaller donations and gestures as well. For example, if you frequently cook for a soup kitchen, you can write off the ingredients that you bought for cooking. Or if you donated your old computer to charity, they are required to give you a receipt with the fair market value of the computer, which can then be deducted. Just note that if your contribution was more than $250, you'll need proof from the charity documenting your support.
4. Student Loan Interest
It doesn't matter if you or a parent pay back money on your student loan — you still might be eligible to take a deduction. If you're a student who's not claimed as a dependent, you can qualify to deduct up to $2,500 of student loan interest paid by you or by someone else.
5. Moving Expenses For a Job
If you moved for a new job, there were undoubtedly a list of costs that added up in order to relocate, and those moving expenses are deductible. If you moved more than 50 miles, you can deduct 23 cents per mile of the cost of getting to your new location, and that includes parking fees and tolls for driving your own car. However, moving expenses are no longer deductible for federal taxes unless you're in the military and the move is due to military orders; military personnel can still claim their moving expenses to the IRS. As long as the move is permanent and was ordered by the military, you don't have to pay tax on qualified moving expense reimbursements. This can include travel and lodging expenses for you and your family and the costs for shipping your pets to their new home!
6. Reinvested Dividends
This isn't a tax deduction, but it's still an important subtraction that can save you a good chunk of money. If you have mutual fund dividends automatically reinvested to buy extra shares (which is extremely common for investors), it's important to remember that each new purchase increases your tax basis in the fund. That then reduces the taxable capital gain (or increases the tax-saving loss) when you redeem your shares. If you forget to include this in your cost basis, you could end up overpaying your taxes, which isn't what anyone wants! And if you're not sure what your basis is, just ask the fund for help.
7. Earned Income Tax Credit (EITC)
According to the IRS, about 25 percent of taxpayers who are eligible for the EITC fail to claim it, either because it sounds too complicated or they don't know they qualify, but if you have a lower income, don't forget to look into this. The EITC is a refundable tax credit (not a deduction) and is designed to supplement wages for low- to moderate-income workers, but it can apply to others as well. For example, if you recently lost a job, took a pay cut, or worked fewer hours during the year, you may be considered "low income" after being previously classified as "middle class." The refund you receive depends on your income, marital status, and family size, and in order to receive it, you need to file a tax return. It's also worth noting that if you were eligible to claim the credit in the past but didn't for whatever reason, you can still file anytime during the year for up to three previous tax years.
8. State Tax You Paid Last Spring
If you ended up owing taxes when you filed your state tax return last year, definitely remember to include that amount with your state tax deduction this year, along with state income taxes withheld from your paychecks or paid via quarterly estimated payments. The deduction for state and local taxes is limited to $10,000 a year or $5,000 if you're married but filing separately.
9. Refinancing Points
When you buy a home, you can usually deduct the points paid to get your mortgage all at once, but when you refinance a mortgage, you have to deduct the points over the course of that loan (for example, if it's a fixed, 30-year mortgage, you can deduct 1/30th of the points per year, which equals $33 per year for every $1,000 of points you paid). And if this is the year you paid off your loan, you get to deduct all as-yet-undeducted points because you either sell your house or refinance again. The one exception to this rule is if you refinance a refinanced loan with the same lender.
10. Jury Pay Paid to Your Employer
Many companies will continue to pay you your full salary while you're on jury duty, while some impose a quid pro quo, which means the employee has to give their jury pay to the company. The IRS demands that you report those jury fees as taxable income, so to even things out, you can deduct the amount you give to your employer.
11. Medical Expenses
If you have had a major medical or dental procedure this year that was costly, you may be able to deduct part of it. In order to qualify, the expense must be larger than 7.5 percent of your adjusted gross income.
12. Education Expenses
If you did any special training or schooling that was needed for your work (i.e. it was necessary to keep your job or further your skills in your career), you can deduct expenses that accumulated for these things, like tuition, books, and supplies.
13. Job Hunting
Looking for a job is time-consuming and can call for a lot of resources. Whether you physically mailed out copies of your résumé or hired an agency to help you become employed, you can deduct some of these expenses.
14. Teaching Supplies
If you teach kindergarten through 12th grade, you can deduct up to $250 for school supplies you bought yourself throughout the year, including books, art supplies, and other items for your classroom.
15. Freelance Expenses
If you are a freelancer or have a side hustle that requires you to use your own resources to get the job done (i.e. driving your own car for something), you can deduct those expenses.