It's that dreaded time of year again - tax season.
If you aren't familiar with all your potential types of deductions, you might dread it even more.
The tax laws in the U.S. are complex, to be sure. But there are some surprising ways to take deductions on your taxes that prove highly beneficial for you.
We've compiled a list of 15 types of deductions you might not be aware of that can save you money. Using these tips will help take the stress out of the tax season.
No one wants to pay Uncle Sam more than they have to, so keep reading to get the refund you deserve!
1. Reinvested Dividends
Technically, this first one isn't exactly a deduction, but a subtraction that might save you a bundle.
If you have money invested in any dividend yielding stocks or funds, it's likely that the dividends get automatically reinvested back into that stock or fund.
Those dividend additions increase your 'tax basis' in that stock or fund. That means you have reduced capital gain when you sell it.
If you sold any stocks or funds where you had dividends reinvested, your capital gains cost basis should be lower.
Remember, if this seems complex, it's never a bad idea to consult with tax service review companies for additional help and details!
The Earned Income Tax Credit, or EITC, is a great credit that millions of Americans take advantage of yearly. But the IRS claims that around 25% of people who could use the EITC don't.
This is because some people get confused by the EITC rules, or because they don't realize they are eligible.
It's important to see if you qualify for it and take advantage of it!
3. Refinancing Mortgage Points
Did you refinance your mortgage this year? You can deduct a percentage of the points paid to get it.
For a 30-year mortgage, you can deduct 1/30th of the points this year. That translates to $33 for each $1,000 of points you paid. It's a small amount, but some extra money is always a good thing!
4. State Sales Tax
You generally get to choose between income tax and state and local taxes when it comes to your deductions. Most of the time, the better deal is to pick your income tax.
But if you bought a boat, airplane, or car, you can add the state sales tax you paid on it to your potential deduction total. The same applies to home building materials you bought.
There's a chance that itemized deductions on state and local tax might be better than going with your income tax.
5. Out of Pocket Donations to Charity
Don't forget to include the charitable donations that you made from your own pocket.
Even if you didn't make any large donations, the little ones can also add up.
That includes 14 cents of deduction per mile on your car if you drove it for charity.
6. Parental Student Loan Interest
The tax law now says that parents who pay back student loans for their kids can deduct up to $2,500 in the interest.
7. Job Moving Expenses
In an odd twist, the tax law says that you can't deduct expenses that you had while searching for your first job. The good part is that you can write off moving expenses for that same first job.
If you had to move more than 50 miles for a job, you can deduct 23 cents a mile of the cost of getting there!
8. Health Insurance Premiums
If you have medical expenses that exceeded 7.5% of your adjusted gross income, you can claim them as itemized deductions.
If you are self-employed and buy your own health insurance, it's possible to deduct all the cost of your premiums. Make sure you deduct it from your adjusted gross income and not as an itemized deduction.
9. Teacher Deductions
If you're a teacher, you probably have ended up buying items for your students now and then. And those are rarely reimbursed by the school.
Fortunately, K-12 teachers can deduct the price of materials up to $250 a year.
10. Babysitting Charges During Charity Work
This one is fairly narrow, but it might still be helpful. Let's say you are going to volunteer at a charity event, and need to hire a babysitter to look after your kids.
In that circumstance, the IRS lets you deduct the cost of the sitter as long as you can prove that you were volunteering while they worked for you.
11. Lifetime Learning
Tax deductions aren't only for college students. With the Lifetime Learning credit, you can deduct 20% from the first $10,000 you spend on education.
While that amount lessens if you are in a higher income bracket, it applies to everyone, regardless of age.
12. Off the Beaten Path Deductions
When it comes to work-related deductions, no item or expense is too weird to claim. If you can prove it is legitimately used for your career, you might be able to write it off.
A fun example we heard about was a bodybuilder who deducted the body oil he used in his competitions.
So, keep track of everything you are spending money on that relates to your job or business. You never know if you might be able to write it off at tax time.
13. Social Security for Self-employed People
If you're self-employed, you may save some money on your commute, but you also have to pay 15.3% of your income in Medicare and Social Security taxes. These are the amounts usually paid for by employee and employer in total.
But for self-employed people, you can deduct half of that (7.65%) because you are technically the employer.
14. Gambling Loss Deduction
If you're a gambler, you can deduct your losses and expenses with one caveat. You can only deduct based on how much you won from gambling.
If you bought $500 worth of lottery tickets, you can write that expense off as long as you also reported at least $500 of winnings in the year.
15. Residential Energy Credit
If you installed a solar energy system into your house, you are eligible for up to 30% of the installation cost as a deduction. This includes things like solar panels and solar water heaters.
All Types of Deductions
As you can see, there are all types of deductions available that you might not even have heard of. Hopefully, some or all of these are relevant to your tax situation, and you'll be able to take legit deductions all over the place!
If you'd like to learn more, check out this blog on tax deductions!