Taxes are an inevitable part of life, and with tax season upon us, it’s important to know what deductions you may be eligible for to reduce your tax bill. While many taxpayers are aware of some common deductions, such as charitable donations and mortgage interest, there are several commonly overlooked tax deductions in the USA. These deductions can result in taxpayers overpaying on their taxes, which can be a costly mistake.
In this blog, we’ll explore some of the most frequently missed deductions, explain how they work, and provide tips on how to ensure you’re taking advantage of all the deductions you’re entitled to.
Whether you’re a homeowner, student, or retiree, there may be deductions available to you that you’re not aware of. So, let’s dive in and discover what these commonly overlooked tax deductions are.
What Are The Most Commonly Overlooked Tax Deductions In The USA?
There are several commonly overlooked tax deductions in the USA, which can result in taxpayers overpaying on their taxes. Here are some of the most frequently missed deductions:
- Mortgage Interest: If you own a home and have a mortgage, you can deduct the interest you paid on your mortgage for that tax year.
- Medical and Dental Expenses: You can deduct medical and dental expenses that exceed 7.5% of your adjusted gross income (AGI) for the tax year.
- State and Local Taxes: Taxpayers can deduct state and local taxes, including property taxes and state income taxes, up to a maximum of $10,000.
- Charitable Contributions: Charitable donations can be deducted up to a certain limit based on your AGI.
- Job Search Expenses: If you are looking for a job in the same field, you can deduct certain expenses related to your job search, such as resume printing costs and travel expenses.
- Tuition and Fees: Taxpayers can deduct up to $4,000 in tuition and fees paid for higher education.
- Retirement Contributions: Contributions to retirement plans, such as a traditional IRA or a 401(k), are deductible up to a certain amount based on your age and income.
- Student Loan Interest: You can deduct up to $2,500 in student loan interest paid during the tax year.
It’s important to note that while these deductions may be commonly overlooked, not everyone will be eligible for them, and some may have limitations or restrictions. It’s always a good idea to consult with a tax professional or use a reputable tax software to ensure that you’re taking advantage of all the deductions you’re entitled to.
Homeowner Deductions
Mortgage Interest
Mortgage interest is one of the most commonly overlooked tax deductions in the USA. If you’re a homeowner with a mortgage, you may be able to deduct the interest you paid on your mortgage during the tax year. This deduction can provide significant savings, particularly in the early years of your mortgage when the majority of your payments go towards interest.
To qualify for the mortgage interest deduction, you must meet certain criteria. First, you must be the primary borrower or co-borrower on the mortgage. Second, the mortgage must be for your primary residence or a second home. Third, the mortgage must be secured by the property, meaning that the lender can foreclose on the property if you fail to make your mortgage payments. Finally, you must itemize your deductions on your tax return.
The amount of mortgage interest you can deduct depends on the amount of interest you paid during the tax year, as well as the size of your mortgage. You can deduct interest on mortgages up to $750,000 for mortgages taken out after December 15, 2017, or up to $1 million for mortgages taken out before that date.
It’s important to note that not all homeowners will benefit from the mortgage interest deduction. If you take the standard deduction on your tax return, you won’t be able to deduct your mortgage interest. Additionally, if you’re in a lower tax bracket, the deduction may not provide significant savings.
Overall, the mortgage interest deduction is a valuable tax break for homeowners, but it’s important to understand the eligibility criteria and limitations. If you’re a homeowner with a mortgage, make sure to take advantage of this deduction to potentially reduce your tax bill and keep more money in your pocket.
Property Taxes
Property taxes are another commonly overlooked tax deduction in the USA. If you own real estate, you may be eligible to deduct the property taxes you paid during the tax year. This deduction can provide significant savings, particularly for homeowners in high-tax states or those with expensive properties.
To qualify for the property tax deduction, you must meet certain criteria. First, you must own the property and be responsible for paying the property taxes. Second, the property must be your primary residence, a second home, or rental property that you own. Third, the property taxes must be assessed based on the value of the property.
The amount of property taxes you can deduct depends on the amount you paid during the tax year. You can deduct the full amount of property taxes paid, as long as they’re based on the assessed value of the property. This includes taxes paid to state and local governments, as well as taxes paid to foreign governments on foreign property.
It’s important to note that the property tax deduction is limited to $10,000 per year for individual taxpayers, or $5,000 for married taxpayers filing separately. Additionally, if you take the standard deduction on your tax return, you won’t be able to deduct your property taxes.
Overall, the property tax deduction is a valuable tax break for homeowners, but it’s important to understand the eligibility criteria and limitations. If you own real estate, make sure to take advantage of this deduction to potentially reduce your tax bill and keep more money in your pocket.
Energy-Efficient Home Improvements
Energy-efficient home improvements are another commonly overlooked tax deduction in the USA. If you make certain home improvements to increase the energy efficiency of your home, you may be eligible for a tax credit. This credit can provide significant savings, particularly for homeowners who invest in renewable energy systems or energy-efficient appliances.
To qualify for the energy-efficient home improvement tax credit, you must meet certain criteria. First, the home improvement must be a qualifying improvement, such as installing solar panels or a geothermal heat pump. Second, the improvement must be installed in your primary residence. Third, the improvement must meet certain energy efficiency standards set by the government.
The amount of the tax credit you can receive depends on the type of improvement and the cost of the improvement. For example, installing solar panels can result in a tax credit of up to 26% of the total cost, while installing a geothermal heat pump can result in a tax credit of up to 26% of the total cost as well.
It’s important to note that the energy-efficient home improvement tax credit is subject to certain limitations and expiration dates. The credit was extended through 2023, but the percentage and dollar amount of the credit may change depending on the year.
Overall, the energy-efficient home improvement tax credit is a valuable tax break for homeowners who invest in renewable energy systems or energy-efficient appliances. If you’re considering making energy-efficient home improvements, make sure to research the qualifying improvements and eligibility criteria to potentially reduce your tax bill and keep more money in your pocket.
Work-Related Deductions
Job Search Expenses
Job search expenses are another commonly overlooked tax deduction in the USA. If you’re actively seeking new employment and incur expenses related to your job search, you may be able to deduct these expenses on your tax return. This deduction can provide significant savings, particularly if you’re out of work for an extended period of time.
To qualify for the job search expense deduction, you must meet certain criteria. First, you must be searching for a job in the same field as your previous employment. Second, you must be seeking new employment within a reasonable period of time after leaving your previous job. Third, the expenses you incur must be related to your job search, such as resume preparation, travel expenses for job interviews, and job search agency fees.
The amount of job search expenses you can deduct depends on the total amount of qualifying expenses you incurred during the tax year. You can deduct expenses that exceed 2% of your adjusted gross income. For example, if your adjusted gross income is $50,000, you can deduct expenses that exceed $1,000.
It’s important to note that the job search expense deduction is subject to certain limitations and restrictions. For example, you can’t deduct expenses if you’re seeking employment for the first time or if there’s a substantial break between the end of your previous employment and the start of your job search.
Overall, the job search expense deduction is a valuable tax break for job seekers, but it’s important to understand the eligibility criteria and limitations. If you’re actively seeking new employment and incur expenses related to your job search, make sure to keep track of these expenses and consider deducting them on your tax return to potentially reduce your tax bill and keep more money in your pocket.
Union Dues
Union dues are another commonly overlooked tax deduction in the USA. If you’re a member of a union and pay dues to the union, you may be eligible to deduct these dues on your tax return. This deduction can provide significant savings, particularly for those who pay high union dues.
To qualify for the union dues deduction, you must meet certain criteria. First, you must be a member of a union that represents your profession or industry. Second, you must pay union dues as a condition of your employment. Third, you must be able to itemize your deductions on your tax return.
The amount of union dues you can deduct depends on the total amount of qualifying expenses you incurred during the tax year. You can deduct the total amount of union dues paid, as well as any initiation fees or assessments required by the union.
It’s important to note that the union dues deduction is subject to certain limitations and restrictions. For example, you can’t deduct dues paid to a union that primarily represents political or lobbying activities. Additionally, if you take the standard deduction on your tax return, you won’t be able to deduct your union dues.
Overall, the union dues deduction is a valuable tax break for union members, but it’s important to understand the eligibility criteria and limitations. If you’re a member of a union and pay union dues, make sure to consider deducting these dues on your tax return to potentially reduce your tax bill and keep more money in your pocket.
Work-Related Travel Expenses
Work-related travel expenses are another commonly overlooked tax deduction in the USA. If you travel for work and incur expenses related to your travel, such as airfare, lodging, and meals, you may be able to deduct these expenses on your tax return. This deduction can provide significant savings, particularly for those who travel frequently for work.
To qualify for the work-related travel expense deduction, you must meet certain criteria. First, your travel must be primarily for business purposes, such as attending a conference or meeting with clients. Second, your travel expenses must be ordinary and necessary expenses for your job. Third, you must not receive reimbursement for your travel expenses from your employer or any other source.
The amount of work-related travel expenses you can deduct depends on the total amount of qualifying expenses you incurred during the tax year. You can deduct the actual expenses you incurred, such as airfare, lodging, meals, and other travel-related expenses. Alternatively, you can use the standard mileage rate to deduct the cost of using your personal vehicle for business travel.
It’s important to note that the work-related travel expense deduction is subject to certain limitations and restrictions. For example, you can’t deduct expenses for personal activities while on business travel, such as sightseeing or entertainment. Additionally, you can’t deduct expenses for commuting to and from your regular place of work.
Overall, the work-related travel expense deduction is a valuable tax break for those who travel for work, but it’s important to understand the eligibility criteria and limitations. If you travel for work and incur expenses related to your travel, make sure to keep track of these expenses and consider deducting them on your tax return to potentially reduce your tax bill and keep more money in your pocket.
Health Care Deductions
Medical And Dental Expenses
Medical and dental expenses are another commonly overlooked tax deduction in the USA. If you incurred expenses for medical or dental care for yourself, your spouse, or your dependents, you may be able to deduct these expenses on your tax return. This deduction can provide significant savings, particularly for those who have high medical or dental expenses.
To qualify for the medical and dental expense deduction, you must meet certain criteria. First, you must incur expenses for medical or dental care that are not reimbursed by insurance or any other source. Second, the expenses must be for the diagnosis, cure, mitigation, treatment, or prevention of a disease or condition. Third, the expenses must be primarily for the benefit of you, your spouse, or your dependents.
The amount of medical and dental expenses you can deduct depends on the total amount of qualifying expenses you incurred during the tax year. You can deduct expenses for medical and dental care, including doctor visits, hospital stays, prescriptions, and medical equipment. Additionally, you can deduct expenses for certain medical and dental services, such as chiropractic care, acupuncture, and orthodontic treatment.
It’s important to note that the medical and dental expense deduction is subject to certain limitations and restrictions. For example, you can only deduct expenses that exceed a certain percentage of your adjusted gross income (AGI). Additionally, you can’t deduct expenses for cosmetic procedures or general health items, such as vitamins or gym memberships.
Overall, the medical and dental expense deduction is a valuable tax break for those who incur significant medical or dental expenses, but it’s important to understand the eligibility criteria and limitations. If you incurred medical or dental expenses that were not reimbursed by insurance or any other source, make sure to consider deducting these expenses on your tax return to potentially reduce your tax bill and keep more money in your pocket.
Health Savings Account (HSA) Contributions
Health Savings Account (HSA) contributions are another commonly overlooked tax deduction in the USA. HSAs are tax-advantaged accounts that allow individuals with high-deductible health plans (HDHPs) to save money for healthcare expenses. If you contributed to an HSA during the tax year, you may be able to deduct these contributions on your tax return.
To qualify for the HSA contribution deduction, you must meet certain criteria. First, you must have an HDHP and be eligible to contribute to an HSA. Second, your contributions must be made with after-tax dollars, meaning they are not deducted from your taxable income when made. Third, your contributions must not exceed the annual contribution limit set by the IRS.
The amount of HSA contributions you can deduct depends on the total amount of qualifying contributions you made during the tax year. For 2022, the annual contribution limit for an individual with self-only coverage under an HDHP is $3,600, while the limit for an individual with family coverage is $7,200. If you are 55 or older, you can also make an additional catch-up contribution of $1,000.
It’s important to note that if your employer contributes to your HSA on your behalf, these contributions are not included in your taxable income and cannot be deducted on your tax return. Additionally, if you withdraw money from your HSA for non-qualified expenses, you may be subject to penalties and taxes.
Overall, the HSA contribution deduction is a valuable tax break for those who contribute to an HSA and meet the eligibility criteria. If you have an HDHP and contribute to an HSA, make sure to consider deducting these contributions on your tax return to potentially reduce your tax bill and keep more money in your pocket.
Long-Term Care Insurance
Long-term care insurance is another commonly overlooked tax deduction in the USA. This type of insurance provides coverage for individuals who need assistance with daily living activities, such as bathing, dressing, and eating, due to a chronic illness or disability. If you paid premiums for long-term care insurance during the tax year, you may be able to deduct these premiums on your tax return.
To qualify for the long-term care insurance deduction, you must meet certain criteria. First, the insurance policy must be for long-term care services, including nursing home care, home health care, and personal care services. Second, the policy must be a tax-qualified policy, meaning it meets certain requirements set by the IRS. Third, your age at the end of the tax year must be 70 or younger.
The amount of long-term care insurance premiums you can deduct depends on your age and the total amount of qualifying premiums you paid during the tax year. For 2022, the maximum deductible premium is $1,690 for individuals age 41 to 50, $4,520 for individuals age 51 to 60, $5,640 for individuals age 61 to 70, and $7,970 for individuals age 71 and older.
It’s important to note that if you received payments from a long-term care insurance policy during the tax year, these payments may be taxable as income. Additionally, if you deduct long-term care insurance premiums on your tax return, you may not be able to deduct premiums for other types of health insurance.
Overall, the long-term care insurance deduction is a valuable tax break for those who paid premiums for this type of insurance and meet the eligibility criteria. If you have a tax-qualified long-term care insurance policy, make sure to consider deducting these premiums on your tax return to potentially reduce your tax bill and keep more money in your pocket.
Education Deductions
Student Loan Interest
Student loan interest is another commonly overlooked tax deduction in the USA. If you paid interest on a qualifying student loan during the tax year, you may be able to deduct this interest on your tax return.
To qualify for the student loan interest deduction, you must meet certain criteria. First, the loan must have been taken out solely to pay for qualified education expenses, such as tuition, fees, books, and supplies. Second, the loan must be in your name, your spouse’s name, or in the name of your dependent. Third, your modified adjusted gross income (MAGI) must be below a certain threshold. For 2022, the MAGI phase-out ranges are $70,000 to $85,000 for single filers and $140,000 to $170,000 for joint filers.
The amount of student loan interest you can deduct depends on the total amount of qualifying interest you paid during the tax year. For 2022, you can deduct up to $2,500 of student loan interest on your tax return.
It’s important to note that if your parents or someone else paid the student loan interest on your behalf, you cannot deduct this interest on your tax return. Additionally, if you are claimed as a dependent on someone else’s tax return, you cannot claim the student loan interest deduction.
Overall, the student loan interest deduction is a valuable tax break for those who paid interest on a qualifying student loan and meet the eligibility criteria. If you have student loan debt, make sure to consider deducting the interest paid on your tax return to potentially reduce your tax bill and keep more money in your pocket.
Tuition And Fees
Tuition and fees are another commonly overlooked tax deduction in the USA. If you or your dependent paid tuition and fees for post-secondary education during the tax year, you may be able to deduct these expenses on your tax return.
To qualify for the tuition and fees deduction, you must meet certain criteria. First, the expenses must have been paid for post-secondary education at an eligible institution, such as a college, university, or vocational school. Second, the expenses must have been paid for yourself, your spouse, or your dependent. Third, your modified adjusted gross income (MAGI) must be below a certain threshold. For 2022, the MAGI phase-out ranges are $65,000 to $80,000 for single filers and $130,000 to $160,000 for joint filers.
The amount of tuition and fees you can deduct depends on the total amount of qualifying expenses you paid during the tax year. For 2022, you can deduct up to $4,000 of tuition and fees on your tax return.
It’s important to note that you cannot claim both the tuition and fees deduction and the American Opportunity Tax Credit or Lifetime Learning Credit for the same student in the same tax year. Additionally, if you are claimed as a dependent on someone else’s tax return, you cannot claim the tuition and fees deduction.
Overall, the tuition and fees deduction is a valuable tax break for those who paid qualifying expenses for post-secondary education and meet the eligibility criteria. If you or your dependent paid tuition and fees, make sure to consider deducting these expenses on your tax return to potentially reduce your tax bill and keep more money in your pocket.
Education-Related Work Expenses
Education-related work expenses are another commonly overlooked tax deduction in the USA. If you are an educator or work in a related field and paid for certain work-related expenses during the tax year, you may be able to deduct these expenses on your tax return.
To qualify for the education-related work expenses deduction, you must meet certain criteria. First, you must work as a teacher, instructor, counselor, principal, or aide for at least 900 hours during the school year at a school that provides elementary or secondary education as determined by state law. Second, the expenses must be for books, supplies, computer equipment, and other materials that you use in the classroom. Third, you must have paid for these expenses out of pocket and not been reimbursed by your employer.
The amount of education-related work expenses you can deduct depends on the total amount of qualifying expenses you paid during the tax year. For 2022, you can deduct up to $250 of education-related work expenses on your tax return.
It’s important to note that if you are an educator or work in a related field and also claimed the tuition and fees deduction or the American Opportunity Tax Credit or Lifetime Learning Credit, you cannot deduct the same expenses again as education-related work expenses.
Overall, the education-related work expenses deduction is a valuable tax break for educators and others who work in related fields and pay for work-related expenses out of pocket. If you meet the eligibility criteria and paid qualifying expenses during the tax year, make sure to consider deducting these expenses on your tax return to potentially reduce your tax bill and keep more money in your pocket.
Miscellaneous Deductions
Charitable Contributions
Charitable contributions are another commonly overlooked tax deduction in the USA. If you donated money or property to a qualified charitable organization during the tax year, you may be able to deduct the value of your contributions on your tax return.
To qualify for the charitable contributions deduction, the organization must be a qualified charitable organization as defined by the IRS. This includes organizations that are religious, charitable, educational, scientific, literary, or that work to prevent cruelty to animals or children. Additionally, the donation must be a gift of money or property that you gave voluntarily, with no expectation of receiving anything in return.
The amount of charitable contributions you can deduct depends on several factors. If you donated money, you can generally deduct the full amount of the donation up to 60% of your adjusted gross income (AGI). If you donated property, you can generally deduct the fair market value of the property up to 30% of your AGI. If you donated appreciated property, such as stocks or real estate, you may also be able to avoid paying capital gains tax on the appreciated value of the property.
It’s important to note that there are certain limitations and rules that apply to charitable contributions deductions. For example, if you receive any goods or services in exchange for your donation, you may only be able to deduct the amount of the donation that exceeds the fair market value of the goods or services. Additionally, if you donated more than $250 in cash or property, you must have a written acknowledgment from the organization documenting your donation.
Overall, the charitable contributions deduction is a valuable tax break for those who donate money or property to qualified charitable organizations. If you made charitable contributions during the tax year, make sure to consider deducting these contributions on your tax return to potentially reduce your tax bill and support the causes you care about.
Investment And Tax Preparation Fees
Investment and tax preparation fees are another commonly overlooked tax deduction in the USA. If you paid fees related to managing your investments or preparing your tax return during the tax year, you may be able to deduct these fees on your tax return.
To qualify for the investment and tax preparation fees deduction, the fees must be related to producing or collecting taxable income, managing investments that produce taxable income, or determining, collecting, or refunding any tax. This includes fees paid to investment advisors, financial planners, accountants, and tax preparation services.
The amount of investment and tax preparation fees you can deduct depends on several factors. For investment-related fees, you can generally deduct fees that exceed 2% of your adjusted gross income (AGI). For tax preparation fees, you can deduct the full amount of the fees.
It’s important to note that there are certain limitations and rules that apply to investment and tax preparation fees deductions. For example, if you are subject to the Alternative Minimum Tax (AMT), you may not be able to deduct these fees. Additionally, if you receive any reimbursements for these fees from your employer, you cannot deduct them on your tax return.
Overall, the investment and tax preparation fees deduction is a valuable tax break for those who pay fees related to managing their investments or preparing their tax return. If you paid investment or tax preparation fees during the tax year, make sure to consider deducting these fees on your tax return to potentially reduce your tax bill and keep more money in your pocket.
Casualty And Theft Losses
Casualty and theft losses are another commonly overlooked tax deduction in the USA. If you experienced a loss due to a casualty or theft during the tax year, you may be able to deduct the value of your losses on your tax return.
To qualify for the casualty and theft losses deduction, the loss must be sudden, unexpected, and caused by an identifiable event. This includes losses due to fires, floods, storms, earthquakes, theft, vandalism, and other similar events. Additionally, the loss must not be covered by insurance or other reimbursement.
The amount of casualty and theft losses you can deduct depends on several factors. You must first determine the adjusted basis of the property before the loss occurred, subtract any insurance or other reimbursements received, and then reduce the remaining amount by $100. The final amount is then subject to a limitation of 10% of your adjusted gross income (AGI).
It’s important to note that there are certain limitations and rules that apply to casualty and theft losses deductions. For example, you must have documentation to support your claim, such as police reports or insurance claims. Additionally, if the loss was due to a federally declared disaster, you may be able to deduct the loss without being subject to the 10% AGI limitation.
Overall, the casualty and theft losses deduction is a valuable tax break for those who experience losses due to unexpected events. If you experienced a casualty or theft loss during the tax year, make sure to consider deducting these losses on your tax return to potentially reduce your tax bill and recoup some of your losses.
Conclusion
In conclusion, it’s important for taxpayers to be aware of the commonly overlooked tax deductions in the USA to ensure they’re not overpaying on their taxes. While some deductions, such as mortgage interest and charitable contributions, are well-known, others are often missed, resulting in taxpayers missing out on potential savings. By understanding the various deductions available and taking advantage of them, taxpayers can significantly reduce their tax bills.
Homeowner deductions are some of the most commonly overlooked tax deductions. Mortgage interest and property taxes are deductible, and homeowners who make energy-efficient home improvements can also claim a tax credit. Job-related expenses, such as job search costs and work-related travel expenses, are also frequently missed deductions.
Healthcare expenses, such as medical and dental expenses, and contributions to Health Savings Accounts (HSAs), are additional deductions that taxpayers often overlook. Contributions to retirement plans, such as traditional IRAs or 401(k)s, are also deductible up to a certain amount based on your age and income. Education-related expenses, such as student loan interest and tuition and fees, are also frequently missed deductions.
It’s important to note that while these deductions can provide significant savings, not everyone will be eligible for them. Additionally, some deductions may have limitations or restrictions, so it’s always a good idea to consult with a tax professional or use a reputable tax software to ensure that you’re taking advantage of all the deductions you’re entitled to.
