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Expenses you didn't know were tax deductible

Tax deductions can help lower your tax bill and even increase your tax refund on your return. There are several tax deductions you might not know are deductible. 

Sales Taxes 

In some tax years and states, it might make sense to itemize your deductions rather than take the standard deduction. For example, if you made a large purchase like a vehicle or engagement ring, you could deduct sales taxes off your federal return. Or, if you live in a state that does not impose a state income tax, you could write off the sales tax you paid that year.  

Medical Expenses 

You can deduct medical expenses that exceed 7.5% of your AGI if you itemize your deductions. On the other hand, if you’re self-employed, you may be able to deduct 100% of your health insurance premiums. To qualify, you must have no other health insurance coverage. You may only deduct the amount of business income earned that year.  

Home Office Deduction 

Any space in your home used exclusively for conducting business can be deducted at $5 per square foot, up to 300 square feet. This deduction is meant for self-employed individuals. In other words, if you are a W-2 employee who works remotely, you do not qualify.

Charitable Gifts 

Cash donations to approved charities can be deducted for up to 50% of your AGI. However, you must be substantiated with bank statements or receipts. Non-cash donations can be deducted at fair market value. Even out-of-pocket expenses for charitable work can be deducted. Be sure to confirm that the charity has a tax-exempt status with the IRS before donating if you plan to claim a deduction. A few examples of approved organizations include a trust, foundation, church, synagogue, or other religious organizations, and veterans’ organizations.

Childcare & Dependent Care 

If you pay a babysitter to watch your children while you work, look for work or attend school full-time, you may be able to claim the Child Care Credit. This can also apply to care for an elderly parent. They must live with you and qualify as a dependent.  

Student Loan Interest 

If you are required to repay student loan debt, you can deduct the interest paid, up to $2,500, on your federal return. In addition, if your parents paid your student loan debt, the IRS views that money as a gift to you used to pay the loan. In this case, you can deduct up to $2,500 of the student loan interest they paid, as long as they do not claim you as a dependent on their tax return. 

College Expenses  

The number of deductions related to college is quite large. However, there are a couple education credits you might be eligible for. The Lifetime Learning Credit is worth up to $2,000 per year. It can be claimed for education expenses to help gain or improve skills. The American Opportunity Tax Credit allows a maximum annual credit of $2,500 for qualified education expenses paid in the first four years of higher education. In addition, some states even allow you to deduct contributions made to your 529 College Savings Plan.  

Tax Relief for Taxpayers 

Every tax situation is different. There are countless deductions and credits taxpayers can claim on their federal or state returns. Overall, the best thing to do is speak with a tax preparer about which deductions and credits you are eligible for and what substantiation might be needed to claim them. However, do remember claiming deductions without proper substantiation can lead to audits and delays in processing your return.

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