Tax deductions are a critical component of reducing your tax liability, but many taxpayers miss out on deductions they may be eligible for. In this blog post, we'll explore the top five deductions that you may be overlooking and how to claim them.
- State and Local Taxes (SALT) Deduction
One of the most significant deductions that many taxpayers overlook is the State and Local Taxes (SALT) deduction. This deduction allows taxpayers to deduct state and local income, sales, and property taxes from their federal income tax returns. For taxpayers who live in states with high income or property taxes, the SALT deduction can be a substantial benefit.
However, the Tax Cuts and Jobs Act of 2017 (TCJA) placed a $10,000 cap on the SALT deduction, meaning that taxpayers can only deduct up to $10,000 of state and local taxes each year. This cap can be particularly challenging for taxpayers who live in states with high property values or income taxes, so it's essential to maximize this deduction if you're eligible.
- Medical and Dental Expenses
Many taxpayers overlook medical and dental expenses as a deductible expense, assuming that they won't meet the high threshold to qualify. However, you can deduct medical and dental expenses that exceed 7.5% of your adjusted gross income (AGI). This threshold was reduced from 10% to 7.5% under the TCJA, making it easier for taxpayers to qualify for this deduction.
Eligible expenses include doctor and dentist visits, prescription medications, medical devices, and health insurance premiums. If you're unsure whether an expense qualifies, consult with a tax professional or review the IRS guidelines.
- Charitable Contributions
Charitable contributions are another common deduction that many taxpayers overlook. Donations to eligible organizations such as nonprofits and religious institutions can reduce your tax liability, but it's essential to keep detailed records and documentation to support your claim.
To claim a deduction for charitable contributions, you must itemize your deductions rather than taking the standard deduction. You'll also need to provide documentation of your donation, such as a receipt or letter from the organization. If you donate non-cash items such as clothing or household goods, you'll need to document the items' fair market value.
- Job Search Expenses
If you're searching for a job, you may be eligible for a deduction for job search expenses. This deduction allows you to deduct expenses related to your job search, such as resume preparation, travel expenses, and career coaching fees.
To qualify, your job search must be in the same field as your previous job, and you cannot deduct expenses related to your first job search. Additionally, you must itemize your deductions to claim this deduction.
- Student Loan Interest
If you're paying off student loans, you may be eligible for a deduction for the interest you've paid on those loans. This deduction allows you to deduct up to $2,500 of interest paid on qualified student loans each year, reducing your taxable income.
To qualify, your income must fall below a certain threshold, which varies based on your filing status. Additionally, the loans must have been used for qualified education expenses, such as tuition, room and board, and textbooks.
Conclusion
Maximizing your tax deductions is essential to reducing your tax liability and keeping more money in your pocket. By taking advantage of these five commonly overlooked deductions, you can potentially reduce your taxable income and save money on your taxes. However, it's essential to consult with a tax professional or review the IRS guidelines to ensure that you're eligible for these deductions and claiming them correctly.