7 Tax Deductions Most People Forget About
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Filing your taxes every year often means calculating how much money you owe the government. But smart tax filers know that you don’t always have to owe; if you know which deductions to take, you can actually get a nice refund.
In order to decrease how much you owe and increase the possibility of a refund, you need to know which deductions are worth taking. Here are the most commonly missed deductions – make sure you don’t forget to include them when preparing your tax return this year.
1. State Sales Tax
One of the easiest deductions to overlook or completely miss is the state sales tax deduction. Taxpayers are able to write off what they’ve paid in state and local sales tax, or opt to deduct state and local income tax.
If you deduct state sales tax, you’re able to add any sales tax (or income tax) you paid over the past year. This could quickly add up to hundreds or thousands of dollars in deductions, since sales tax is charged on just about every purchase. And if you bought a new car or other big purchase, that sales tax can net you a significant deduction.
In order to take this deduction, the IRS¹ notes that you’ll have to itemize your deductions, and you’ll be limited to a max deduction of $5,000 if you’re filing solo and $10,000 if you’re filing jointly. This deduction will only work for those who live in states without an income tax – so make sure to know whether or not you’re paying state income tax before taking this deduction.
2. Out-of-Pocket Charitable Contributions
Every time you donate to a charity, you should take note: you’re able to deduct your charitable donations of any amount come tax time.
If you’ve contributed any money to a recognized charity – a nonprofit organization that’s been given 5013c status by the IRS – you’re able to deduct that amount on your taxes. So, for every $25 contribution to your favorite local charity or your annual $1,000 donation to your former university’s scholarship fund, you’re able to score savings on your taxes.
In addition to direct donations to charitable organizations, you’re also able to write off any out-of-pocket costs that are associated with charitable donations or volunteering your time. As TurboTax² explains, you can deduct expenses like the amount you spend on ingredients for food you’ve prepared for your local nonprofit soup kitchen or the cost of buying goods from a charity fundraiser.
Just make sure when taking this deduction that the organizations you’ve donated money and goods to have 5013c status. They have to be recognized as a nonprofit by the IRS for your deduction to count.
3. Moving Expenses for a New Job
If you spent the last year hunting for your very first job, you likely had a tough decision to make: do you look for work in your current city, or find something in a new town? Anyone who chose to move into a new city or region for their first job over the last year made a smart tax choice – and you’re eligible to deduct your moving expenses.
Anyone who moved a certain distance for their first job is able to write off any moving expenses related to this change. Here’s another perk of this deduction: you can take the write-off even if you aren’t itemizing your deductions. You can take the standard deduction and still deduct your moving expenses. Just make sure you qualify for the IRS requirements³ in order to successfully claim this deduction.
4. Student Loan Interest Paid by Parents
Many students wind up paying back their own student loans, and it makes sense that those in repayment would get to write off the interest they’ve been paying on those loans. But if your parents have been helping you out with student loan payments, did you know you can also get that same tax break?
That’s right – even if your parents are paying back your loans, you can deduct student loan interest too. This is because the IRS views parents’ payments as money being given to the child, or loan holder, and then paid towards the loan. The catch is you can’t be claimed as a dependent, and you can only deduct up to a set amount of the interest you’ve paid over the past year.
Like other deductions mentioned on this list, you don’t want to forget another perk of this deduction: there’s no need to itemize. The Balance⁴ reports that this is an “above the line” deduction, meaning you don’t have to itemize all of your deductions in order to get this write-off, which makes filing your tax return a lot easier.
5. Earned Income Tax Credit (EITC)
Did your income change over the last year unexpectedly? If so, you’ll want to consider taking the Earned Income Tax Credit when filing your tax return. Plenty of taxpayers are unaware of this credit, which could put thousands of dollars back into your refund.
It’s easy for many taxpyers to miss out on the EITC – if you don’t know what it is, you likely won’t deduct it. The EITC is a tax credit, not a deduction, of up to $6,431 according to TurboTax⁵. And this tax credit is specifically designed to help out low- to moderate-income workers who meet the following requirements:
- Lost a job
- Took a pay cut
- Worked fewer hours during the year
The EITC you receive will depend on your annual income, your filing status, and the size of your household. Make sure you check your eligibility to see if you can qualify for this credit.
6. State Tax Paid Last Spring
Here’s a deduction many people don’t even think about: you can deduct other taxes you’ve paid over the last year.
If you owed taxes to Virginia when you filed your tax return last year, you likely paid those taxes after filing. And now, as you prepare your tax return for the year that just ended, you’ll be able to deduct that state tax payment from your total income.
To get this deduction, make sure you include the amount you owed and paid on your newest tax return, along with any state income taxes that were withheld from your paychecks over the past year. There’s a limit on this deduction, but you deserve to score this write-off for paying taxes in the past.
7. Mortgage Refinance Points
Have you refinanced your home mortgage over the last year? Don’t forget to take a very important and potentially money-saving deduction when filing this year: your mortgage refinance points.
Here’s how it works, according to TurboTax⁶: when you refinance your mortgage, you’re allowed to deduct the points over the loan’s lifetime. For example, if you have a 30-year mortgage, you can deduct 1/30th of the points per year, giving you a write-off of $33 for every $1,000 in points paid. And that $33 can add up if taken multiple times or every year.
And if you’ve paid off your loan while refinancing, you can also deduct additional points. Just make sure to check your refinancing terms and the IRS requirements to qualify for this deduction.
Tax Help Ensures You Don’t Miss a Deduction
Handling your taxes and tax return is a complicated task – which is why it’s no surprise that so many people miss out on deductions like these. Unless you’re a tax pro and knowledgeable about every one of the latest changes to tax law, you’re likely to miss out on a few write-offs and leave money on the table.
But that’s why tax professionals exist. They’re here to help ensure you get every deduction you deserve, including ones you may not have known about. So, to ensure you’re getting the biggest refund possible and maximizing your tax return’s deductions, enlist the help of a tax prep expert. You can easily find tax professionals in your area and online, meaning there’s no reason you need to leave money behind ever again.