Expenses You Didn’t Know Were Tax Deductible

by | Apr 11, 2024 | Taxes & Your Savings

tax deducting

Tax deductions can help lower your tax bill and even increase your tax refund on your return. While most people are aware of common deductions like mortgage interest, charitable donations, and medical expenses, there are a plethora of lesser-known expenses that could potentially save you money on your taxes. There are several tax deductions you might not know are deductible.  

Sales Taxes 

For taxpayers who itemize deductions, you can deduct either state and local income taxes or state and local sales taxes paid throughout the year. In some tax years and states, it might make sense to itemize your deductions rather than take the standard deduction. This deduction can be particularly advantageous for residents of states with no income tax or for those who made significant purchases subject to sales tax. 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 home office 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 Contributions

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. For example, you can deduct the cost of gasoline to travel to complete charitable work. Alternatively, you can deduct mileage. The standard mileage rate for charitable travel in 2023 was 14 cents per mile and it will remain at this rate in 2024. 

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. 

Child & 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 and Dependent 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. 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. That is as long as they do not claim you as a dependent on their tax return.  

College Expenses  

While most people are familiar with the deduction for tuition and fees, other educational expenses may also be deductible. This includes costs for workshops, seminars, and even certain textbooks and supplies. In addition, some states even allow you to deduct contributions made to your 529 College Savings Plan.

State Tax Deductions 

Your state may also offer its own set of unusual tax breaks. For example, Hawaii offers a tax deduction to taxpayers who maintain an “Exceptional Tree,” like the native Norfolk Pine. This deduction is up to $3,000 per tree and can be claimed once every three years. Alaska offers a deduction of up to $10,000 to offset the cost of whaling, which involves hunting whales to give the blubber and skin back to the community. New Mexico allows its residents to stop paying state income taxes once they reach 100 years old, as long as they’ve been a resident for the last six months. 

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. 

If You Need Tax Help, Contact Us Today for a Free Consultation 

What Medical Expenses Are Tax Deductible?

by | May 23, 2023 | Tax Planning

what medical expenses are tax deductible

Tax deductions can drastically reduce your total tax liability and allow you to save money. While medical bills can be a significant hardship for many individuals and families, it is critical to understand that certain medical expenses are tax deductible. Understanding the eligibility criteria and documentation requirements will help you in optimizing your deductions and possibly lowering your tax payment. In this post, we will look at medical expenses that are tax deductible. 

Tax Deductible Medical Expenses 

You might be surprised to hear that the IRS lists over 80 medical expenses that you can deduct from your taxes. While the full list of eligible expenses can be found on IRS Publication 502, some common expenses include: 

  • Acupuncture 
  • Ambulance services 
  • Braille reading materials 
  • Costs incurred to accommodate your home to a disabled condition 
  • Costs incurred to install special equipment in your vehicle that accommodates a disabled condition 
  • Chiropractor 
  • Contact lenses 
  • Dental treatment 
  • Eye exams 
  • Fertility treatment 
  • Hearing aids 
  • Lab fees 
  • Medicines 
  • Nursing home expenses 
  • Physical exams 
  • Psychiatric care 
  • Transplants 
  • X-rays 

Medical Expenses That Are Not Tax Deductible 

You should always be aware of the medical expenses you may not deduct during tax time including but not limited to: 

  • Cosmetic surgery (some limitations apply) 
  • Funeral expenses 
  • Future medical care 
  • Maternity clothes 
  • Nonprescription drugs and medicines 
  • Nutritional supplements 

How to Claim Medical Expense Deductions 

In order to deduct medical expenses on your tax return, you will need to itemize your deductions. That being said, it is really only worth doing if your medical expenses exceed the standard deduction. The 2023 standard deduction is $13,850 for a single filer and those who are married but filing separately, $27,700 for married couples filing jointly, and $20,800 for heads of households. These figures are set to increase for tax year 2024 to the following:  

  • Single Filers, Married Couples Filing Separately: $14,600 
  • Married Couples Filing Jointly: $29,200 
  • Heads of Households: $21,900 

If it seems itemizing your deductions would save you money than taking the standard deduction, you can deduct your qualified medical expenses using Schedule A. Keep in mind that you may only deduct unreimbursed medical expenses paid during the year previous. In addition, you can only deduct expenses that exceed 7.5% of your adjusted gross income (AGI). For example, if your AGI is $45,000, then the first $3,375 (7.5% of $45,000) of qualified medical expenses cannot be deducted. Anything that exceeds $3,375 can be deducted. Assuming you had $10,000 of unreimbursed medical expenses for the year, you would be allowed to deduct $6,625 of it on your tax return. 

If you do decide to deduct medical expenses during tax time, be sure to keep adequate records of your expenses during the year. Keep receipts, invoices, statements, and any other relevant documentation that validate your medical expenses. Not doing so can result in financial loss, risk of audits, and dealing with the IRS. If the IRS has reached out to you about your tax situation, we can help. Optima Tax Relief has over a decade of experience helping taxpayers with tough tax situations. 

Contact Us Today for a Free Consultation