In the hustle and bustle of tax season, it's easy to overlook potential tax deductions that could save you money. With the IRS tax code constantly evolving, it can be challenging to keep up with all the deductions you're eligible for. To help you out, here are the top 5 tax deductions that you might be overlooking.
1. State and local taxes
Most taxpayers are aware that they can deduct their state and local tax payments on their federal return. However, what many don't realize is that this deduction isn't just limited to income taxes. It can also include property taxes, sales taxes, and even vehicle registration fees in some states.
Depending on where you live, this can add up to a substantial deduction. Just be aware that there's a cap of $10,000 ($5,000 if married filing separately) on the total amount you can deduct for state and local taxes.
2. Charitable contributions
Charitable contributions are another commonly overlooked deduction. This includes not only cash donations but also property donations and even out-of-pocket costs you incur while doing charity work. Remember, though, that this deduction is only available if you itemize your deductions.
As of 2021, taxpayers who take the standard deduction can also deduct up to $300 ($600 for couples filing jointly) for cash donations to qualifying charities.
3. Medical expenses
Medical expenses can be a significant burden, but they can also provide a substantial tax deduction. You can deduct medical expenses that exceed 7.5% of your adjusted gross income. This includes a wide range of expenses, such as doctor's visits, prescription medications, and even transportation costs related to medical care.
Remember, though, that you can only take this deduction if you itemize your deductions.
4. Business expenses for self-employed
If you're self-employed, you have a whole world of potential deductions at your fingertips. This includes not only obvious expenses like office supplies and advertising costs but also less obvious ones like a portion of your rent or mortgage if you have a home office.
Just remember to keep thorough records of all your expenses, as the IRS is likely to scrutinize these deductions closely.
5. Education expenses
Last but not least, don't forget about education expenses. If you're a student, you can deduct tuition, fees, and even the cost of books and supplies. Plus, teachers can deduct up to $250 for classroom supplies out of their own pocket.
Just remember that some of these deductions require you to itemize, while others are available even if you take the standard deduction.
Here's a quick summary of the top 5 overlooked tax deductions:
Don't leave money on the table this tax season. Make sure you're taking advantage of these top 5 overlooked tax deductions. Consult with a tax professional to ensure you're maximizing your tax savings and staying within the boundaries of the law.