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There are some tax breaks that aren’t as well known as they should be. Read on for a few deductions that could help you save. [[{“value”:”
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The United States tax code is rather complex, and the reality is that because of its complexity, many people don’t get all of the tax deductions they qualify for. Could any of the following deductions help reduce your tax bill?
1. Medical expenses
Taxpayers can deduct medical expenses that exceed 7.5% of their adjusted gross income, or AGI. So, if you have an AGI of $100,000, any medical expenses over $7,500 can be deductible.
Far too many people do a quick calculation in their heads and decide their medical expenses cannot possibly be more than this amount. But you might be surprised.
Qualifying expenses don’t just include obvious medical costs like doctor’s bills and prescription medications. Deductible medical expenses can also include contact lenses and glasses, hearing aids (and their batteries), any medical insurance premiums, pregnancy tests, programs to help you stop smoking, and the cost of transportation to and from medical care.
In short, your medical expenses can be far higher than you might think.
2. Saver’s credit
Formally known as the Retirement Savings Contribution Credit, this provides a tax credit of as much as $1,000 per year ($2,000 for couples) if you save in a retirement account like an IRA or 401(k). There are strict income limitations ($73,000 for joint filers in 2023, for example), but this can be a valuable credit.
And while this article is technically about deductions, not credits, it’s important to mention that this can be used in addition to the deductions you get for contributing to retirement accounts, such as the traditional IRA deduction.
3. Home equity loan interest (maybe)
If you itemize deductions, mortgage interest is one of the biggest tax deductions available. However, the tax law says that you can deduct the interest on as much as $750,000 in qualified personal residence debt, and this doesn’t include the mortgage you used to buy your home — it can include home equity loans as well.
In order to be eligible, the home equity debt must have been used to improve, maintain, or repair your home. In other words, if you used a home equity line of credit (HELOC) to renovate your kitchen, it could qualify. If you used a home equity loan to consolidate credit card debt, it wouldn’t.
4. Charitable mileage
It’s common knowledge that taxpayers who itemize deductions can deduct charitable contributions. However, if you use your vehicle while contributing to a qualifying charitable cause, you can also deduct the mileage you drive at a $0.14-per-mile rate.
This may seem small, but it adds up. If you drive 20 miles round-trip to donate to your local food bank each weekend, for example, that’s almost $150 per year.
5. Gambling losses
If you win money at a casino, from a state lottery, or from another type of gambling, you may receive a tax form and be required to report it.
However, many taxpayers don’t realize they can use gambling losses to offset their winnings. One tip is to use a casino’s players card to track your win/loss activity, and save any losing lottery tickets to have proof of losses in case you end up winning a sizable amount of money.
Not an exhaustive list
These are just a few examples of commonly overlooked tax deductions, but the United States tax code is complex, and there are plenty of others you might qualify for. Fortunately, most tax preparation software does a great job of walking you through each and every possibility.
As a final tip, if you truly want to maximize your deductions, take the time to go the long way through your tax software. Let the software ask you all of its deduction-seeking questions, even if you’re fairly sure they won’t apply to you. You might be surprised at what you find.
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