10 Tax Deductions You Should Be Taking Advantage Of

taxes

No one wants to pay more taxes than they have to. 

Tax deductions lower your tax bill by subtracting the deductions from your taxable income, thus reducing the total amount of income you owe taxes for. 

It’s never a good feeling when you’ve filed your taxes and only realized after that you forgot to include certain deductions, or that you qualified for additional deductions. Doing so would have lowered your tax bill more or granted you a bigger refund. 

Don’t leave money sitting on the table

Be prepared and take advantage of these tax deductions you may not have considered before.

1. Health Insurance Premiums and Expenses

Medical care and insurance premiums are costly. Thankfully the IRS recognizes that too and offers a deduction for qualified medical expenses.

The following medical expenses can be claimed on your taxes:

  • Health insurance premium costs
  • Preventative care (screenings or physicals)
  • Treatment (primary or specialists)
  • Dental visits and care
  • Vision visits and care
  • Mental Health (Psychologist or Psychiatrist)
  • Surgeries
  • Prescription medications
  • Assistive devices (glasses or contact lenses, hearing aids, dentures, breathing machines)
  • Travel expenses for care (mileage on car, public transportation fees, parking fees)

To take full advantage of this deduction, it needs to total more than 10% of your adjusted gross income. Let’s say your income is $40,000 per year and you had $5,000 in medical costs. 

Adjusted Gross Income (AGI) 10% of AGI Medical Expenses Total Deduction
$40,000
$4,000
$5,000
$1,000

2. Contributions to Charity and Non-Profit Organizations

Claiming a deduction is not limited to just writing a check to charity. There are many things you can write off from your involvement in contributing to doing good deeds.

Here’s a few ideas for you to remember:

  • Any direct cash or checks you gave to a charity, whether individually or even through your payroll deduction at work
  • The cost of gifts or physical goods to a charity or non-profit organization
  • Tithes you paid at church
  • Food or ingredients for recipes you prepared for soup kitchens or fundraisers
  • Stamps
  • Mileage if you used your vehicle for charitable events (14 cents per mile)
  • The cost of a babysitter if used during your time volunteers
  • Clothing or other items donated to places like Goodwill (get a receipt of the appraised value of your donation)

3. Home Office Deduction

Maybe you work from home from your employer and have a dedicated work room. Maybe you are a musician and have a dedicated music room for practice or teaching. Maybe you are self-employed from home.

If you have a room or space in your home that you regularly use for exclusive business activities, you are able to write off expenses for that space.

There are two methods you can go about claiming this deduction.

  • The simplified version
  • The actual expenses version

The simplified version provides a deduction of $5 per square foot of the room you have dedicated for business use. So, if you are using 200 square feet of office space, you are allowed a deduction of $1,000.

The actual expenses version lets you claim 15% of indirect business expenses such as mortgage interest, property taxes, insurance, or utilities. You can also claim the cost of direct expenses in full, like replacing the floor of the office space or painting the walls.

If you spend $500 repairing the floor of your office, you can deduct the full $500. If you plan on deducting actual expenses, keep receipts and detailed records of all purchases, repairs and bills.

4. Dividend Reinvestment Plans

Some stocks or mutual funds pay dividends on the shares owned. You can have those dividends automatically reinvested into the stock rather than being paid the dividends as cash. 

You can claim those dividends on your capital gains taxes if you sold shares of the stock during the year.

Basically, what you do is subtract the dividends reinvested from the actual sale price of your shares. This reduces the amount you owe on capital gains taxes and saves you money.

Forgetting to take advantage of this deduction will mean you are overpaying on your taxes.

5. Mortgage Interest Deduction

If you own a home, you need this deduction. 

The mortgage interest tax deduction reduces your taxable income by the amount of mortgage interest you pay. In the early years of home ownership especially, the amount you pay on your mortgage is mostly interest.

You can lower your taxable income by thousands of dollars a year taking this deduction.

In the same vein is mortgage refinancing. If you refinanced your home, you can get a deduction each year of your mortgage loan. The amount depends on how much you paid in points when refinancing, and the term length of the loan.

So, if you refinanced to a 30 year mortgage, and paid $3,000 in points, you can deduct 1/30th of that $3,000, which would be $100 per year. It’s not a lot, but it’s still money that you would otherwise be taxed on and are just throwing away.

6. 401(k) Contributions

The benefits of contributing to your employer’s 401(k) cannot be overstated. If you’re not investing in a 401(k), then you are giving away free money. Add the fact that you can deduct your contribution amount on your taxes, and it just sweetens the deal.

You are not taxed by the IRS when you contribute from your paycheck directly into a 401(k). This means whatever you invest in that account is deducted from your taxable income.

For 2019, you can invest up to $19,000 per year into your 401(k). If you’re 50 or older, you can invest up to $25,000. 

Investing in a 401(k) not only helps you secure your future financial outlook, but can also put you in a lower tax bracket, reducing your tax bill or increasing your refund.

7. Health Savings Account (HSA) Contributions

Contributions to Health Savings accounts are tax-deductible, so be sure to include it when you do your taxes to reduce your taxable income. 

On top of that, if you spend your contributions on qualified medical expenses, then withdrawing the money is tax-free too, so it’s a win-win.

If you have individual health insurance coverage, you can contribute up to $3,500. 

If you have family health insurance coverage, you can contribute up to $6,900.

8. Education Deductions

Higher education is investing in yourself and your potential, and the IRS rewards you for that when it comes to tax time. There are lots of various deductions you can claim for your education expenses.

  • If you are a school teach or educator, you can deduct you can deduct up to $250 from classroom supplies and materials on your taxes.
  • If you paid interest on student loans, you can deduct up to $2,500. You can also claim this if someone else was paying your student loan, because the IRS considers it the same as if you are paying off the debt.
  • The Lifetime Learning Credit allows you to deduct 20% of the first $10,000 you spend on higher education after high school. This can be any post-secondary classes you take, even if it’s not working towards a getting a degree. Learn more about the Lifetime Learning Credit here.

9. State Sales Tax

When it comes to state taxes, you can deduct either state income tax or state sales tax. Currently, Alaska, Florida, Nevada, South Dakota, Texas, Washington, and Wyoming don’t have income tax. New Hampshire and Tennessee don’t tax wages.

If you made a lot of purchases, or large purchases such as a tv, car, furniture, engagement ring, then deducting sales tax rather than income tax can be a big money saver. You will have to itemize your taxes to take the deduction, so saving yours receipts is a must. 

10. Miscellaneous Deductions

Yes, I know the title of this article is 10 tax deductions you should be taking advantage of, but I figured I would add a few more for you and file them under miscellaneous.

  • Business expenses. We covered the home office deduction, but pretty much anything you buy that is of benefit to your business can be deducted from your taxes. Office equipment, software, maintenance. Think outside the box. If it’s purchased to be used for the business or on the business property, you can deduct it.
  • If you’re looking for a job, you can deduct the job seeking expenses if they are great then 2% of your adjusted gross income. Traveling to interviews, printing resumes, training. It can add up pretty quickly.
  • Self-employment. If you are self-employed, then you have to pay for Social Security and Medicare taxes at a rate of 15.3 percent. But, you can deduct half of that (7.65 percent) from your income taxes.
  • Military personnel who were ordered to be relocated can claim moving expenses on their deductions, from gas mileage, moving fees, to tolls and parking.
  • Jury duty. If you are summoned and selected for jury duty, you are required to provide your payment for the service as taxable income. Some employers, however, continue to pay an employee’s salary when on jury duty, and request to be reimbursed. If you reimbursed your employer that money, you can deduct it from your taxes so you don’t have to pay income tax on money that didn’t come to you.
  • Gambling. Believe it or not, you can deduct your gambling losses on your taxes! You do, however, also have to report your winnings, and your deductions can’t total more than the winnings reported. So, say you won and report $500 on your income, then go on a losing streak. You can claim those losses as deductions up to $500, the amount you previously won.

Conclusion

Tax laws are deep and can be very confusing for the average lay person.

We hope these tips will help you prepare and maximize your deductions, credits and refund.

To make it even easier, we highly recommend using TurboTax software for your tax needs.

For over 25 years, TurboTax products have been continuously ranked as the #1 best-selling tax software helping Americans keep more of their hard-earned money.

They will walk you every step of the way, covering all your deduction and credit categories, handling even the toughest tax situations for you. 

For those of you who are itemizing your deductions, see our article Budgeting 101: First Steps Towards Building a Budget Plan that Works for You to learn more on ways to help track your expenses.

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