5 Essential Tax Deductions You Don’t Want to Miss This Tax Season

Tax season can be a stressful time for many individuals and families, as they work to compile the necessary documentation and ensure they’re accurately reporting their income and expenses. One way to alleviate some of the stress and potentially save money on your tax bill is to take advantage of the various tax deductions available to you. In this post, we’ll discuss five essential tax deductions that you don’t want to miss this tax season.

  1. Medical and Dental Expenses

If you’ve incurred significant medical or dental expenses throughout the year, you may be able to deduct a portion of those costs on your tax return. To qualify for this deduction, your total medical and dental expenses must exceed 7.5% of your adjusted gross income (AGI) for the tax year. Eligible expenses can include doctor visits, hospital stays, prescription medications, and even some home improvements made for medical reasons.

To claim this deduction, you’ll need to itemize your deductions on Schedule A of your tax return, rather than taking the standard deduction. Be sure to keep detailed records of your medical and dental expenses, including receipts and invoices, as you may need to provide proof of these costs if the IRS requests documentation.

  1. State and Local Taxes (SALT)

The state and local tax (SALT) deduction allows you to deduct some or all of the state and local taxes you’ve paid throughout the year, including property taxes, income taxes, or sales taxes. However, under the Tax Cuts and Jobs Act (TCJA) of 2017, the total SALT deduction is capped at $10,000 for both single filers and married couples filing jointly.

To claim the SALT deduction, you must itemize your deductions on Schedule A of your tax return. You can choose to deduct either your state income taxes or your sales taxes, but not both. If you opt to deduct sales taxes, you can either use the actual amount of sales tax paid during the year or use the IRS-provided sales tax calculator to estimate your deduction based on your income and location.

  1. Mortgage Interest

If you own a home and have a mortgage, you may be able to deduct the interest paid on your mortgage throughout the year. This deduction can be particularly valuable for homeowners in the early years of their mortgage, as the majority of their monthly payments will go toward interest rather than the principal balance.

The mortgage interest deduction is available for mortgages used to purchase, build, or improve your primary residence or a second home, with some limitations. For mortgages taken out after December 15, 2017, the deduction is limited to interest on up to $750,000 of mortgage debt ($375,000 if married filing separately). For mortgages taken out before that date, the limit is $1 million ($500,000 if married filing separately).

To claim the mortgage interest deduction, you must itemize your deductions on Schedule A of your tax return. Be sure to retain your Form 1098, which your lender will send you at the end of the year, as it will detail the amount of mortgage interest you’ve paid.

  1. Charitable Contributions

If you’ve made donations to qualified charitable organizations during the year, you may be able to deduct those contributions on your tax return. This can include cash donations, as well as the fair market value of any property or goods you’ve donated. You can also deduct the cost of travel and mileage incurred while volunteering for a charitable organization.

To claim

the charitable contributions deduction, you must itemize your deductions on Schedule A of your tax return. Keep detailed records of your donations, including receipts or acknowledgment letters from the organizations you’ve supported. The IRS may require proof of your contributions if you’re audited.

There are some limitations on the amount you can deduct for charitable contributions, depending on your adjusted gross income (AGI) and the type of organization you’ve donated to. For most cash contributions to public charities, the deduction is limited to 60% of your AGI. For non-cash contributions and donations to private foundations, the limit is typically 30% or 50% of your AGI.

  1. Education Expenses

There are several tax deductions and credits available to taxpayers for education expenses, including the Student Loan Interest Deduction, the American Opportunity Tax Credit (AOTC), and the Lifetime Learning Credit (LLC).

The Student Loan Interest Deduction allows you to deduct up to $2,500 of interest paid on qualified student loans during the year. This deduction is available as an above-the-line deduction, meaning you don’t need to itemize your deductions to claim it. Eligibility for this deduction phases out for higher-income taxpayers.

The AOTC is a tax credit available to taxpayers who are pursuing a degree or other recognized education credential and are enrolled at least half-time for at least one academic period during the tax year. The credit can be worth up to $2,500 per eligible student and is available for the first four years of post-secondary education.

The LLC is a tax credit available for taxpayers who are enrolled in eligible educational institutions for courses to acquire or improve job skills. The credit can be worth up to $2,000 per tax return and is available for an unlimited number of years.

To claim these education tax benefits, you’ll need to complete the appropriate section of your tax return and, in some cases, attach additional forms, such as Form 8863 for the AOTC or LLC. Be sure to retain your Form 1098-T, which your educational institution will send you at the end of the year, as it will detail the qualified education expenses you’ve incurred.

Conclusion

Taking advantage of these essential tax deductions can help you save money on your tax bill and ensure you’re making the most of the tax benefits available to you. As you prepare for the upcoming tax season, be sure to consult with a tax professional if you have questions about your eligibility for these deductions or need assistance with your tax return. Remember that every taxpayer’s situation is unique, and the best approach to maximizing your tax savings will depend on your individual circumstances.

References and Additional Resources:

  1. Internal Revenue Service (IRS) – The official website of the U.S. tax authority, where you can find detailed information on tax deductions, credits, and regulations. https://www.irs.gov
  2. IRS Publication 502 – Medical and Dental Expenses: This publication provides detailed information on the medical and dental expenses deduction, including eligible expenses and how to claim the deduction. https://www.irs.gov/publications/p502
  3. IRS Publication 530 – Tax Information for Homeowners: This publication covers the tax benefits available to homeowners, including the mortgage interest deduction and property tax deductions. https://www.irs.gov/publications/p530
  4. IRS Publication 526 – Charitable Contributions: This publication provides information on the tax benefits of making charitable donations, including how to determine the fair market value of donated property and the limits on charitable deductions. https://www.irs.gov/publications/p526
  5. IRS Publication 970 – Tax Benefits for Education: This publication explains the various tax benefits available to taxpayers for education expenses, including the Student Loan Interest Deduction, American Opportunity Tax Credit, and Lifetime Learning Credit. https://www.irs.gov/publications/p970