Many taxpayers wince when they think about paying and filing their taxes, but there’s one area of taxes that won’t make you cringe: deductions! Most of us would like to pay less in taxes, and claiming deductions is one way to do just that.
Let’s examine some of the most easily missed tax deductions and how you can use them to your benefit during tax season and all year ‘round.
What Are Tax Deductions?
First, let’s get a clear understanding of what a tax deduction is. A tax deduction can include anything that lowers your tax liability (how much you owe in taxes) by lowering your taxable income (the amount of your income that can be taxed). For example, deductions could include writing off certain business expenses or claim depreciation on an asset.
Keep reading to learn about some commonly overlooked and easy-to-miss tax deductions and how you can maximize your tax refund.
5 Easily Missed Tax Deductions And How to Qualify
1. Home Office Expenses
There’s a lot of confusion about deducting home office expenses. According to the IRS, you have to use a specific part of your house “exclusively and regularly for conducting business” to qualify. An applicable home office could be an actual office used solely for work or a walk-in basement you’ve converted into a permanent hair salon. You can’t claim your dining room as a home office just because you occasionally work from home and set up there.
You’ll need to calculate what percentage of your house you are using as a home office. Deductible expenses could include a corresponding percent of your:
- Mortgage interest
- Area depreciation
2. Charitable Gifts and Donations
It’s important to note that you can only deduct charitable gifts and donations if you itemize your deductions rather than taking the standard deduction.
Standard Deduction: The set amount determined by the IRS that you are allowed to subtract from your total income to reduce your taxable income. Your standard deduction amount depends on your filing status and total income.
Itemized Deductions: A detailed list of all your deductions (medical bills, donations, mortgage interest, etc.) Most taxpayers only choose to itemize if their total deductions turn out to be higher than the standard deduction bracket for which they qualify.
In order to deduct charitable gifts or donations, you’ll need proof of the exact amount of money you donated or an appraisal of how much your donated goods were worth.
3. Classroom Materials — The Educator Expense Deduction
There are a few tax incentives for teachers, but the most common is the educator expenses deduction. To claim this deduction, you must:
- Have worked at least 900 hours at a certified elementary or secondary education facility as a teacher, counselor, student aide, or principle
- Have purchased school supplies out of pocket and without any reimbursement
- Have receipts or other proof of the purchases
If you meet these criteria, you can list the cost of those supplies as deductions on your taxes (up to $250). If you plan on claiming classroom materials as a deduction, you should save your receipts for purchases materials in a separate file for when you do your taxes at the end of the year.
4. Work-Related Educational Expenses
Did you pay out of pocket to attend a seminar to improve your current job skillset? Or purchase a certification program or online course? These types of work-related adult education expenses might be tax-deductible. However, the education must relate to your current job as a way to develop your skills or as a legal requirement. For instance, you can’t claim a cooking class is training for a future culinary career if you’re currently working in retail.
But if you do qualify, you could deduct expenses for:
- Tuition or registration fees
- Books and other required supplies
- Transportation and travel (bus fare, parking costs, etc.)
5. Student Loan Interest Deduction
If you took out a student loan for higher education (or took out the loan for a spouse or dependent), you could be eligible for a deduction of up to $2,500 from your taxable income. To qualify for a student loan interest deduction:
- The loan must apply to an enrollment period of at least half-time, and toward earning a recognized credential (degree, certificate, etc.).
- The student must be enrolled at an eligible institution
- The student used or will use the loan for tuition, books, fees, and other supplies (housing, insurance, and transportation costs are not eligible)
- The student used the loan within the period between 90 days before or after the academic period
S.H. Block Tax Services Can Help You File and Maximize Your Tax Refund
Need help filing or optimizing your taxes? S.H. Block Tax Services is here to help. We have simple answers for all your complicated tax questions and can help determine your eligibility for various tax incentives to maximize your tax refund.
The content provided here is for informational purposes only and should not be construed as legal advice on any subject.