Here are some of the most common deductions that many taxpayers can take advantage of:
Charitable Donations
The more you give, the more you can deduct from your taxes. If you itemize your deductions, any money you gave to your church, your alma mater or your favorite charities can all be written off your taxes. You can deduct any amount of charitable giving up to 60% of your taxable income.
Medical Expenses
Do you have health insurance but still find yourself paying out of pocket for medical or dental expenses? The IRS lets you deduct medical expenses that are more than 7.5% of your taxable income for things like appointments with medical professionals or dentists, prescription drugs, contacts or eyeglasses, and health insurance premiums (paid for with after-tax dollars and not reimbursed by your employer), just to name a few.
To break it down: If your adjusted gross income was $50,000, then 7.5% of that is $3,750. So if you had $5,000 of medical expenses that weren’t covered by your health insurance, subtract the $3,750 from that and you get $1,250 as a tax deduction.
State and Local Taxes
A lot of folks forget this one! The IRS lets you choose to deduct either your state and local sales tax or income tax, along with some foreign taxes. This is sometimes called the SALT (state and local tax) deduction.
Example: You live in a state with no income tax, but you did pay sales tax on some big purchases this year like a new car or furniture set for the living room. In this case, deducting sales tax is the way to go. And if you’re a homeowner, you can deduct property taxes from your taxable income as well.
Keep in mind, this deduction is generally capped at $10,000 ($5,000 for married filing separately). To calculate your deduction, check out the IRS sales tax deduction calculator.
Student Loan Interest
While student loans are nothing but bad news, there is a silver lining when it comes to how those loan payments can affect your taxes.
See, student loan interest (up to $2,500) is one of the rare “above-the-line” deductions, which means you can claim it even if you don’t itemize. This deduction is an adjustment to income and gradually phases out as your income increases.
How does it work? Well, you can either deduct $2,500 in student loan interest or the amount of loan interest you paid during the tax year, whichever is less.
Mortgage Interest
Ah, the joys of homeownership! There’s the big backyard, the white picket fence, the mortgage payments . . . okay, maybe not that last one. But at least you can deduct the interest you paid on up to $750,000 of mortgage debt. There’s even a property tax deduction if you qualify.
Retirement and Investing
If you happen to have a traditional IRA, those contributions are most likely tax deductible (and they lower your taxable income whether you take the standard deduction or not).
But your deduction might be limited based on your income and whether or not you (or your spouse if you’re married) have a retirement plan through your workplace.
Here’s the catch: You’ll have to pay taxes on the money you take out of your traditional IRA in retirement. Yuck. That’s why we recommend investing with a Roth IRA instead. Roth IRAs are funded with taxed income. You won’t be able to deduct Roth contributions from your taxable income now, but who cares? You’ll enjoy tax-free growth and withdrawals in retirement later. Future you will thank you!
Home Office Expenses
If you’ve turned part of your home into your own workspace used only for business, you can write off work-from-home expenses like rent, utilities and maintenance costs. It might take some extra measuring and calculations as you prepare to file your taxes, but it’s worth the effort if you qualify for this deduction.
Other Ways to Save on Taxes
There are other deductions worth looking into. For example, you can deduct your moving expenses if you qualify. Kids can have a major effect on your taxes too, so ask a pro about whether you qualify for the child tax credit, child and dependent care credit, and more. You may even get credit for adoption! Source