Tax deductions reduce your taxable income to help lower your overall tax bill. While most people claim the standard deduction, there are dozens of lesser-known opportunities that could help you keep more of your money at tax time.
According to H&R Block, some of the most common deductions are ones you take “above the line” that reduce your adjusted gross income, which can be claimed even if you take the standard deduction. Others are considered “below the line” and can be used only if you itemize your deductions.
According to tax experts, these are some of the most common tax deductions many people miss.
Also see three ways to maximize your tax deduction if you’re itemizing.
“This deduction doesn’t apply to many people, but individuals with high medical expenses that exceed 7.5% of their adjusted gross income can deduct these expenses,” Melanie Musson, finance expert at Quote.com, wrote in an email. “They can even deduct the miles they drive to medical appointments and the price of airfare for medical reasons.”
According to IRS Publication 502, taxpayers may deduct qualified medical and dental expenses that aren’t reimbursed by insurance, including doctor visits, hospital stays, prescription medications and certain home modifications made for medical care.
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The Child and Dependent Care credit is a federal tax credit that helps eligible taxpayers pay for the care of qualifying individuals, including children and dependents. According to Nathan Goldman, Ph.D., CPA, member of the American Accounting Association, this allows parents paying for daycare, preschool or babysitters to work and deduct those costs.
“The restrictions are that the child must be under 13 at the end of the year and living with you for more than half the year,” he explained. You also must have earned income throughout the year, and if you’re married, then both spouses must have earned income.
“The maximum amount that can be deducted is $3,000 ($6,000 if you have two or more qualifying persons),” he added. “This amount does phase out for high-income taxpayers.”
“Many people forget that they can deduct their student loan interest,” Musson explained. “Any help you can get when dealing with student loans is something you should take advantage of.”
According to the IRS, the student loan interest deduction is an above-the-line deduction that allows eligible borrowers to deduct up to $2,500 in interest paid on qualified federal and private student loans each year. It applies to loans used to pay for tuition, fees, books, supplies and other necessary educational expenses for yourself, your spouse or your dependents.
