Common Personal Tax Deductions People Overlook Every Year
Did you know that, according to the IRS, approximately 20% of eligible taxpayers fail to claim the Earned Income Tax Credit each year?
The oversight, along with other commonly missed deductions, can lead to paying more taxes than necessary.
Today, we’re taking a closer look into common personal tax deductions that individuals often overlook.
By identifying these frequently missed opportunities, you can implement effective tax reduction methods to maximize your tax refunds.
State and Local Taxes
Many taxpayers overlook deductions related to state and local taxes.
Three primary types of state and local taxes can be deducted:
- Income vs. Sales Tax
- Property Taxes
- Personal Property Taxes
Income vs. Sales Tax
Taxpayers have the option to deduct either state income tax or state sales tax, but not both.
In states with no income tax, the sales tax deduction is especially valuable.
Many people forget that major purchases, such as cars or boats, can be included in the sales tax deduction.
Keeping receipts for these large expenses can make a difference when filing a return.
Property Taxes
Homeowners often know they can deduct property taxes, but some miss the opportunity by not including all eligible payments.
Real estate taxes on a primary residence and second home qualify for deductions, but taxes on rental properties must be claimed differently.
Those who pay property taxes through an escrow account should review their mortgage statement to ensure they are claiming the correct amount.
Personal Property Taxes
Taxes paid on vehicles, boats, and other personal assets may also qualify for deductions.
Some states charge annual taxes based on the value of a car, and those payments can often be deducted.
Many people forget to include this expense, even though it can add up over time.
Checking tax records for these payments can help lower taxable income.
Charitable Contributions Beyond Cash Donations
Many people claim deductions for charitable donations, but some miss out on additional ways to reduce their taxable income.
There are three primary areas where taxpayers often overlook deductions:
- Non-Cash Donations
- Volunteer Expenses
- Payroll Deduction Donations
Non-Cash Donations
Donating clothing, furniture, electronics, or other household goods to charity can qualify for a deduction.
The IRS allows taxpayers to claim the fair market value of donated items, but many people fail to keep proper records.
Receipts from charities help document these contributions, and some organizations provide valuation guides.
If an item is worth more than $500, additional paperwork may be required.
Volunteer Expenses
Many people give their time to charity but don’t realize some expenses related to volunteer work can be deducted.
Travel costs, such as mileage to and from a nonprofit organization, can be included. Uniforms required for volunteer work may also qualify.
Payroll Deduction Donations
Some employees contribute to charities through workplace payroll deductions.
These donations may not always be reflected in year-end tax documents, leading many people to miss the deduction.
Reviewing pay stubs and employer records can help ensure these contributions are included when filing taxes.
Medical and Dental Expenses
Many taxpayers overlook medical and dental expenses when filing their taxes.
There are three common types of medical expenses that people fail to claim:
- Qualified Expenses
- Travel for Medical Care
- Health Insurance Premiums
Qualified Expenses
Medical and dental treatments that are not reimbursed by insurance can be deducted if they meet IRS guidelines.
It includes prescription medications, doctor visits, surgeries, and mental health services.
Some medical equipment, such as wheelchairs or hearing aids, may also qualify.
Many people forget that long-term care costs can sometimes be included.
Travel for Medical Care
Transportation costs related to medical treatment are often overlooked.
The IRS allows deductions for mileage, parking, and lodging when traveling for necessary medical care.
It applies to trips for specialized treatments or procedures that are not available locally.
Keeping records of these expenses can help lower taxable income.
Health Insurance Premiums
Self-employed individuals may be able to deduct health insurance premiums.
It includes coverage for themselves, their spouse, and dependents.
Unlike other medical deductions, this expense is deducted separately and does not require meeting a percentage of income threshold.
Many people fail to claim this deduction, which can lead to missed tax saving opportunities.
Work-Related Expenses for Employees and Self-Employed Individuals
Many taxpayers miss out on deductions for work-related expenses.
There are three common types of work-related expenses that can help lower taxable income:
- Home Office Deduction
- Job Search Costs
- Professional Development
Home Office Deduction
Self-employed individuals who use part of their home exclusively for business can claim the home office deduction.
It applies whether they own or rent their home.
The IRS allows a simplified option based on square footage, or a detailed method that includes rent, mortgage interest, utilities, and maintenance costs.
Many business owners fail to claim this deduction because they believe it increases the chance of an audit.
As long as the space is used regularly for business and meets IRS guidelines, the deduction is legitimate.
Job Search Costs
Expenses related to searching for a new job in the same field may qualify for a deduction.
It can include resume services, travel for interviews, and fees paid to employment agencies.
Many taxpayers forget that printing resumes, mailing applications, and even internet costs used for job hunting may be deductible.
The expenses can add up, especially for those who spend months searching for a position.
Professional Development
Workers who pay for job-related education, certifications, or licensing fees may be able to deduct those costs.
Courses that improve skills or maintain professional status often qualify.
Some online training programs and industry conferences can also be deducted.
Many people assume their employer must reimburse these expenses, but if they pay out of pocket, the deduction can help offset the cost.
Tax Deductions for Individuals
Many taxpayers miss out on deductions that could lower their tax bill.
And this look at common personal tax deductions highlights ways to reduce taxable income.
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