5 surprising tax deductions you may be overlooking

U.S. tax laws are somewhat complex, and the reality is that that complexity prevents many people from receiving all of the tax deductions to which they are entitled. Which of the following deductions can help reduce your tax bill?

1. Medical expenses

Taxpayers can deduct medical expenses that exceed 7.5% of their adjusted gross income (AGI). So, if your AGI is $100,000, you can deduct medical expenses exceeding $7,500.

Too many people do a quick calculation in their head and decide that their medical bills cannot exceed this amount. But you might be surprised.

Eligible expenses don’t just include obvious medical expenses like doctor bills and prescription drugs. Deductible medical expenses may also include contact lenses and glasses, hearing aids (and batteries), medical insurance premiums, pregnancy tests, smoking cessation programs, and transportation to and from medical services.

Simply put, your medical bills can be much higher than you think.

2. Depositor’s credit

Officially known as the Retirement Savings Contribution Credit, it provides a tax deduction of up to $1,000 per year ($2,000 for married couples) if you save in a retirement account such as an IRA or 401(k). Although there are strict income limits (e.g. $73,000 for joint filers in 2023), this can be a valuable deduction.

Although this article is technically about deductions and not credits, it is important to mention that these can be used. furthermore This is a deduction you get for contributing to a retirement account, like the traditional IRA deduction.

3. Mortgage interest (possibly)

When you itemize your deductions, mortgage interest is one of the largest tax deductions. However, tax law allows you to deduct interest on up to $750,000 of qualified personal home debt, not including the mortgage you used to purchase your home. This may also include a home equity loan.

To qualify, your mortgage debt must have been used to improve, maintain, or repair your home. That means if you used a home equity line of credit (HELOC) to renovate your kitchen, you may qualify. This would not be the case if you used a home equity loan to consolidate credit card debt.

4. Charity mileage

It is common knowledge that taxpayers who itemize deductions can deduct charitable contributions. However, if you use your vehicle while contributing to a qualified charity, you may be able to deduct driving mileage at a rate of $0.14 per mile.

This may seem small, but it adds up. For example, if you drive 20 miles round trip every weekend to donate to your local food bank, that’s almost $150 per year.

5. Gambling losses

If you win money at a casino, state lottery, or other type of gambling, you may be required to obtain and report a tax form.

However, many taxpayers don’t realize that they can use their gambling losses to offset their winnings. One tip is to use the casino’s player card to track your winning and losing activities, and save your lost lottery tickets so you have proof of your losses in case you end up winning a significant amount of money.

Not a complete list

These are just a few examples of tax deductions that are commonly overlooked. However, U.S. tax rules are complex, and there are many other provisions you may be subject to. Fortunately, most tax preparation software does a great job of walking you through all the possibilities.

As a final tip, if you really want to maximize your deductions, take the time to dig through your tax software. Let the software ask all your deduction-seeking questions, even if you’re sure they don’t apply to you. You might be surprised by what you discover.

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