Best 9 Deductions on Taxes You Have To Know About

Did you know that the most recent numbers proved that over 45 million of us itemize deductions on our 1040s- which means that we’re claiming $1.2 trillion worth of tax deductions? Yep, I’m not joking, that’s the number: $1,200,000,000,000!

And in the same year, taxpayers decided to claim the standard deduction accounted for $747 billion. As you probably have guessed already, those who took the easy way out short-changed themselves eventually.

Plus, if you turned 65 years old in 2021, you have to know that you qualify for a bigger standard deduction than younger folks. So, we decided to make a list of the 10 most overlooked tax deductions. If you deserve them, claim them as soon as possible! Don’t you want to keep the money in YOUR pocket?

State sales taxes

This example probably makes a lot of sense for those who live in several specific states that don’t impose an income tax. And by that, we mean Alaska, Florida, Nevada, New Hampshire, Tennessee, South Dakota, Washington, Texas, and Wyoming.

I know you’re probably wondering how is this a factor. Well, you have to choose between deducting state and local income taxes, or even state and local sales taxes. For the majority of people that live in income-taxing states, the state and local income tax deduction is probably the best deal.

But for those of you who live in an income-tax-free state, there are two ways in which you can claim the sales tax deduction on your tax return. First, you can use the IRS tables that have been provided for your state, in order to understand what is there to deduct.

Plus, if you purchased an asset, anything from a vehicle, a boat, an airplane, a home, or even a huge home renovation project, you’re able to add the state sales tax you have already paid for on these big-ticket items. Of course, to the amount that you see on the IRS tables, up to the limit of the state you live in.

Reinvested dividends

While this isn’t exactly a tax deduction, it is still a subtraction that could save you a ton of money. Not to mention that it’s one of those things that so many taxpayers overlook. Like many other investors, you will have mutual fund and stock dividends that will be automatically reinvested in extra shares.

That’s why you have to remember that every investment grows your “tax basis” in the stock or the mutual fund. And do you know what happens with that tax basis? It reduces the amount of taxable capital gain when you decide to sell your shares.

Out-of-pocket charitable contributions

No one can overlook the big charitable gifts you have made during the year, whether they were made by check or payroll deduction. However, all these little things might add up, too, and you could end up writing off out-of-pocket costs that took place while you were doing all those good deeds.

I think that what I’m about to say will cheer you up! For example, ingredients for casseroles you made consistently for a qualified nonprofit organization’s soup kitchen, or even the cost of stamps you bought for your school’s fundraiser ALSO COUNT as a charitable contribution. If you used your car on charity time, you can deduct up to 14 cents per mile.

Student loan interest that’s been paid by your or someone else

Back in the day, if parents or anyone else paid back a student loan that a student had to incur, there was no such thing as getting a tax break for that. So to get any kind of deduction, the law decided that you had to be both liable for the debt, and pay it yourself.

But now, things have changed, and there’s a small exception. You know that you have to be eligible to take a deduction, but even if someone else paid for the loan, the IRS will see it as if they landed you the money, and then you paid the debt yourself.

In conclusion, a student who’s not registered as a dependent can easily qualify to deduct as much as $2,500 of student loan interest that’s been paid by you or someone else.

Moving expenses

Even if the majority of taxpayers have lost their ability to deduct moving expenses starting with 2018, there’s one main group of people who can still claim their moving expenses to the IRS. The military personnel.

If by any chance, you are an active duty military member who’s currently relocating, you might still deduct most of these expenses, as long as you don’t move with the help of reimbursement from the government to move.

Plus, if the move is permanent, AND the relocation was, in fact, ordered by the military, you won’t have to pay any taxes on qualified moving expense reimbursements.

Child and dependent care tax credit

A tax credit is way better than a tax deduction because it reduces your tax bill dollar for dollar. Missing one might turn out to be more painful than missing a deduction, as it reduces the amount of income that’s subject to tax.

However, it can be easy to overlook the Child and Dependent Care Credit when you pay your child care bills through a reimbursement account at work. As much as $6,000 in care expenses can easily qualify for a credit, even if the $5,000 from a tax-favored account can’t be used.

BUT, if you decide to run the maximum $5,000 through a proper plan at work, but then spend more for work-related child care, then you can claim the credit for an extra $1,000, which will cut your tax bill by a minimum of $200, using the minimum 20 percent of the expenses.

Earned income tax credit (EITC)

Some so many lower-income people use this credit every year. Even so, 25% of taxpayers who could be eligible for the Earned Income Tax Credit still fail to claim it, according to a report made by the IRS.

Some of them miss out on the credit only because the rules might be too complicated for them, while others aren’t even aware that they can qualify. The EITC is a refundable tax credit, so don’t confuse it with a deduction.

It has a maximum amount for all sorts of filing statuses, from $1,502 to $6,728. The credit is made to supplement wages for those people who have low-to-moderate income.

However, the credit doesn’t apply only to lower-income workers. There are tons of millions of workers and their families that were previously classified as “middle class”, which are now considered “low income”, either because they lost a job, took a pay cut, or even worked very little during the year.

State tax that you paid for last spring

If you owned any sort of taxes when you filed for the 2021 state tax return, you have to remember to include the amount with your state tax itemized deduction when it comes to your 2022 return, besides the state income taxes that were withheld from your paychecks.

Starting with 2018, the deduction for state and local taxes can be limited to a maximum of $10,000 a year.

Refinancing mortgage points

When you decide on buying a house, you can deduct all the points paid on the mortgage at once. Even so, when you refinance a mortgage, you have to deduct the points on the new loan.

This means that you can deduct 1/30th of the points in a year if you have a 30 years mortgage, which is $33 a year for every $1,000 of the points you have paid.

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