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Taxes are inevitable, and no matter what you do, they have to be paid eventually. The amount of tax you need to pay depends on a number of factors, with income level being the primary factor. However, you can lower the tax bill if you have possible deductions.
For many individuals and small business owners, there are often overlooked tax deductions that can help reduce your tax bill. In this article, we’ll explore some of the most commonly overlooked tax deductions.
State Sales Taxes
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- State Sales Taxes
- Out-of-Pocket Charitable Donations
- Job Hunting Expenses
- Retirement Savings Contributions
- Child and Dependent Care Expenses
- Home Office Deduction
- Start-up Costs
- Office Expenses
- Business Related Travel Expenses
- Student Loan Interest
- Medical Expenses
- Health Insurance
- Energy-Efficient Home Improvements
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One of the most commonly overlooked tax deductions is state sales taxes. Taxpayers can deduct either state income taxes or state sales taxes paid during a given tax year. This is highly beneficial if there are no income taxes in your state.
It also comes in handy if you made a big purchase, such as a car or a boat that incurred a lot of sales tax, then taking the state sales tax deduction could be more advantageous. You should make all purchases known to your expert while filing taxes to maximize benefits.
Out-of-Pocket Charitable Donations
Donations are another commonly overlooked tax deduction. Many people make out-of-pocket charitable donations to different organization but do not mention them in their tax filings. Taxpayers can deduct cash and non-cash donations made to qualified charitable organizations.
They can also deduct smaller donations made throughout the year without needing a receipt. For example, if you donated $20 to a charity by text message or donated clothes to Goodwill, those smaller donations can add up and be deducted from your tax return.
Job Hunting Expenses
If you were looking for a job in the same line of work as your previous job, you may be able to deduct job search expenses, such as the cost of printing resumes or traveling to job interviews. This deduction is often overlooked, but it can be especially helpful if you were unemployed for a significant amount of time.
You need to fill in a specific form along with details. Although the tax deduction isn’t a massive one, it is still some money that you do not need to pay taxes on.
Retirement Savings Contributions
Contributions that you make towards a traditional IRA or 401(k) plan may be tax-deductible, which can help lower your taxable income for the year. Additionally, contributions made to a Roth IRA are not tax-deductible, but qualified distributions from a Roth IRA are tax-free.
You will need to talk to your tax filer to ensure that you get the maximum deductions without making a mistake.
Child and Dependent Care Expenses
Taxpayers who pay for child care or dependent care may be eligible for the Child and Dependent Care Credit. This credit can reduce your tax bill significantly.
The exact amount depends on several factors. The more dependents you have, the larger will be the tax deduction.
Home Office Deduction
For home-based small business owners, the home office deduction is a frequently overlooked. You can deduct some of your home expenses, such as mortgage interest, utilities, and maintenance, as a home office deduction.
It’s important to note that the space must be used exclusively and consistently as the principal place of business to qualify for the deduction.
Small business owners can deduct up to $5,000 in startup costs, such as advertising and legal fees, in their first year of business. This deduction can be useful for new business owners, since it can be help reduce a significant amount of taxes in the tougher times for a startup.
Small business owners can deduct expenses related to their office, such as rent, utilities, and office supplies. This deduction can be especially helpful for small business owners who rent office space, as rent can be a significant expense.
Business Related Travel Expenses
Small business owners can deduct travel expenses related to business trips, such as airfare, lodging, and meals. You should pay close attention to the requirements IRS has for such deductions.
It can be tempting to try and include all travel for the deductions. However, there are very clear guidelines that must be followed at all times.
Student Loan Interest
Taxpayers who pay interest on student loans may be able to deduct up to $2,500 in interest paid. The concession is allowed for the interest only and not the principal amount paid during the year.
You can deduct medical expenses exceeding 7.5% of your adjusted gross income (AGI) for the year. This includes expenses such as doctor’s visits, prescriptions, and medical equipment. Make sure that you keep the invoices and fill out all the necessary information to get the deductions.
Small business owners who provide health insurance to their employees may be eligible for a tax credit. Your CPA can help you fix the required paperwork, and everything will be in order.
Energy-Efficient Home Improvements
Taxpayers who made energy-efficient improvements to their homes, such as installing solar panels or energy-efficient windows, may be eligible for a tax credit. There is also a federal tax credit for switching to Electrical Vehicles
We can conclude that there are many tax deductions available to both individual taxpayers and small business owners that are often overlooked. By benefitting from these deductions, you can reduce your tax bill considerably.
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