We are well and truly into the tax season and if you haven’t filed already, you should be doing so as soon as possible.
But before you submit your returns, there are some things you might want to know, things like smart deductions that could be claimed on your returns and ultimately save you money.
Indeed, many taxpayers miss out on implementing valuable tax write-offs simply because they don’t know about them.
Here are 5 common tax write-offs to consider.
1. Home Office Deductions
If you run a business from home, you may be eligible for a deduction on office space and utilities.
It’s important to note that “home” includes a house, apartment, condominium, mobile home, boat or similar property that provides adequate accommodation. It can also apply to an unattached garage on your property, studio, barn or greenhouse.
To qualify for the home office deduction, you must use your home or specific designated area exclusively as your principal place of business.
You will not meet the IRS requirements if you use the area for both business and personal purposes.
Tax write-offs may include expenses related to painting or repairs to that business-only area of your home, as well as mortgage interest, insurance, utilities, maintenance, and depreciation.
Further details can be found in the IRS Business Use of Your Home guide.
IRS Form Required: Form 8829.
2. Mileage & Travel Expenses
If you must travel away from your home (place of business), then you are entitled to use the expenses incurred as a tax write-off.
This tax write-off also applies to employees who do a lot of business travel.
According to IRS rules, the travel expenses incurred “must be ordinary and necessary; they can’t be lavish, extravagant or for personal purposes.”
Examples of travel expenses that are deductible include air, bus and train fare, as well as expenses related to car travel, fares for taxis/Ubers, lodging, meals, and more.
See the full list on the IRS website.
IRS Forms Required: Schedule C (Form 1040) for the self-employed and Schedule F (Form 1040) for farmers.
3. Professional Fees and Education
Did you know that you may be able to deduct the cost of your work-related education expenses if you’re a self-employed taxpayer, an Armed Forces reservist, a qualified performing artist, a fee-based state or local government official, or a disabled individual with impairment-related education expenses?
To qualify, the expenses must be for education that maintains or improves your skills and that are needed to do your job, or that your employer or the law requires so that you can keep your present position.
Deductible expenses include tuition, books, supplies, lab fees, the cost of research and typing, in addition to certain transportation and travel costs.
IRS Forms Required: Schedule C of Form 1040 for self-employed individuals who have a sole proprietorship; Schedule F of Form 1040 for farmers; Schedule 1 of Form 1040 for Armed Forces reservists, qualified performing artists and state or local government officials, as well as attaching Form 2106, Employee Business Expenses to the returns; and Schedule A (Form 1040) or Schedule A (Form 1040-NR) for disabled individuals, and attaching Form 2106 to the returns.
4. Medical and Dental Expenses
Medical and dental expenses can also be used as a tax deduction.
On your tax return, you can include medical expenses for yourself as well as other members of your family that come under your health insurance plan, such as a spouse or a dependent.
The medical expenses that the IRS considers deductible can be found in its Publication 502 Medical and Dental Expenses.
Generally, you can deduct your health insurance expenses on Schedule A (Form 1040), but only an amount that is more than 7.5% of your AGI (adjusted gross income).
If you have an employer-funded HRA (Health Reimbursement Arrangement) that reimburses you for medical expenses and allows unused amounts to be carried forward, that HRA cannot be used as a deduction on your tax return.
IRS Form Required: Schedule A (Form 1040).
5. Retirement Contributions
If you make contributions to your 401(k) or a traditional or Roth IRA, you can get a tax credit of 10, 20 or 50% depending on your AGI, which you would report on Form 1040.
The maximum contribution that qualifies for a credit is $2,000 ($4,000 if married and filing jointly).
Rollover contributions do not qualify for a tax write-off.
You’ll find more information on the retirement savings contributions credit on the IRS website as well as more information on our website.
IRS Form Required: Form 8880.
Additional Tax Write-Offs to Consider
Property Taxes – Under the Tax Cuts and Jobs Act, deductible state and local income taxes, including property taxes, are capped at $10,000. Scheduled to last through the 2025 tax year.
Mortgage Interest – the tax write-off is limited to interest of up to $750,000 of mortgage debt incurred after Dec. 15, 2017.
State Taxes Paid – the tax write-off is capped at $10,000 for all deductible state and local taxes.
Charitable Contributions – you can deduct charitable cash contributions totaling up to 60% of your AGI. Donations of items or property are also included.
American Opportunity Tax Credit – get a tax break on the first four years of higher education learning. The maximum annual credit is $2,500 per eligible student.
Self-Employed Health Care Premiums – you can deduct 100% of the health insurance premiums you pay for that relate to yourself, your spouse and your dependents.
Student Loan Interest – the maximum interest you can deduct is $2,500 and the maximum tax write-off depends on your income.
Adoption Tax Credit – some costs that are eligible for a tax write-off include reasonable and necessary adoption fees, court costs and attorney fees, as well as travel expenses.
Solar Tax Credit – you may claim up to 30% off the cost of solar water heaters and solar electric panels installed from 2022 through 2032.
Let us know if this information has been useful to you as you find ways to save on your tax returns. As always, feel free to reach out to us if you need additional information.
