Don’t Overlook These 11 Common Tax Deductions

Understanding Tax Deductions and How They Benefit You

Tax season can be a stressful time, but one way to reduce your tax burden is by taking advantage of deductions. Tax deductions lower your taxable income, which in turn decreases the amount of tax you owe to the IRS. Understanding which deductions you qualify for can help you maximize your tax savings and keep more money in your pocket.

There are two primary types of tax deductions:

• Above-the-line deductions: These reduce your Adjusted Gross Income (AGI) and can be claimed regardless of whether you itemize your deductions or take the standard deduction.
• Below-the-line (Itemized) deductions: These are claimed only if you itemize your deductions instead of taking the standard deduction. They are deducted from your AGI to calculate your taxable income.

To make the most of your tax return, here are 11 common tax deductions that taxpayers often overlook.

Above-the-Line Deductions

Above-the-line deductions directly lower your AGI, which can also make you eligible for other tax credits and deductions that have AGI limits. These deductions apply whether you take the standard deduction or itemize.

1. Retirement Contributions

If you contribute to a tax-advantaged retirement account, such as a Traditional IRA or 401(k), you may be able to deduct those contributions. These deductions lower your taxable income and help you save for the future.

• For 2024, the IRA contribution limit is $7,000 ($8,000 for those aged 50 and older).
• Contributions to an employer-sponsored 401(k) are made pre-tax, reducing your taxable income.
• Roth IRA contributions are not deductible, but they grow tax-free.

2. Health Savings Account (HSA) Contributions

A Health Savings Account (HSA) is a powerful tool for managing healthcare expenses while enjoying tax advantages.

• Contributions are tax-deductible.
• The funds grow tax-free.
• Withdrawals for qualified medical expenses are also tax-free.
• For 2024, contribution limits are $4,150 for individuals and $8,300 for families.

3. Student Loan Interest Deduction

If you are paying off student loans, you may be eligible to deduct up to $2,500 of interest paid during the tax year.

• The deduction phases out for individuals earning over $75,000 and married couples earning over $155,000 (2024 limits).
• This deduction applies even if you don’t itemize.

4. Educator Expenses

Teachers and eligible educators can deduct up to $300 per year ($600 for married couples filing jointly if both spouses are educators) for classroom supplies and materials.

5. Self-Employment Expenses

If you are self-employed, you can deduct certain expenses that directly relate to your business, such as:

• Half of your self-employment tax (since you pay both employer and employee portions).
• Health insurance premiums if you’re not eligible for an employer-sponsored plan.
• Home office expenses (based on the square footage used for business purposes).

Below-the-Line (Itemized) Deductions

These deductions apply only if you itemize instead of taking the standard deduction. Itemizing makes sense if your total deductions exceed the standard deduction amount for your filing status.

For 2024, the standard deduction amounts are:

• Single filers: $13,850
• Married filing jointly: $27,700
• Head of household: $20,800

6. Medical Expenses

Unreimbursed medical expenses that exceed 7.5% of your AGI can be deducted if you itemize.

• Qualifying expenses include doctor visits, surgeries, prescription medications, dental and vision care, and even mileage for medical-related travel.

7. State and Local Taxes (SALT) Deduction

You can deduct up to $10,000 ($5,000 if married filing separately) in state and local income taxes, property taxes, or sales taxes.

• If you live in a state with no income tax, you can deduct state sales taxes instead.

8. Mortgage Interest Deduction

If you own a home, the interest paid on a mortgage of up to $750,000 ($375,000 if married filing separately) is tax-deductible.

• The deduction applies only to mortgage interest, not the principal.
• Interest on home equity loans may be deductible if the loan was used to improve your home.

9. Charitable Contributions

Donations to qualified charities are tax-deductible, and they can include:

• Cash donations.
• Donated goods (clothing, furniture, etc.).
• Mileage driven for charitable purposes.

The deduction limit is 60% of your AGI for cash donations and 30% of your AGI for non-cash contributions.

10. Casualty and Theft Losses

Losses due to federally declared disasters can be deducted if they exceed 10% of your AGI, minus a $100 per-event deductible.

• Only losses in areas officially designated as disaster zones by FEMA qualify.
• Theft losses are generally not deductible unless related to business or investment property.

11. Gambling Losses

If you report gambling winnings on your tax return, you can deduct gambling losses up to the amount of your winnings.

• You must have proper documentation, such as betting slips or casino statements.
• The losses must be claimed as an itemized deduction.

Key Considerations When Claiming Tax Deductions

1. Standard Deduction vs. Itemizing

Before deciding to itemize deductions, calculate whether your total itemized deductions exceed the standard deduction for your filing status. If they don’t, the standard deduction is the better choice.

2. Keep Accurate Records

To claim deductions, you must maintain proper documentation, such as:

• Receipts and invoices for medical expenses, charitable contributions, and business expenses.
• Mortgage statements showing interest paid.
• Tax documents like Form 1098 (Mortgage Interest Statement) and Form 1098-E (Student Loan Interest Statement).

3. Be Aware of Income Limits and Phase-Outs

Some deductions, like student loan interest and IRA contributions, phase out at higher income levels. Always check current IRS rules or consult a tax professional to ensure eligibility.

4. Consult a Tax Professional

Navigating tax deductions can be complex. Consulting a certified tax professional can help ensure you maximize deductions and remain compliant with IRS regulations.

Final Thoughts

Understanding and leveraging tax deductions can significantly reduce your tax liability, keeping more of your hard-earned money. By being proactive, keeping thorough records, and consulting with a tax professional if needed, you can ensure that you’re taking full advantage of the deductions available to you.

As tax laws and deduction limits change frequently, staying informed about the latest IRS updates will help you make smart tax-saving decisions year after year.