The information in this article is up to date for tax year 2024 (returns filed in 2025).
Want to avoid owing a large amount of money at tax time? Tax deductions can help reduce your federal income tax. Make sure you take advantage of every tax deduction you can! We know that the tax laws are confusing and it can be hard for the average person to know what tax breaks are out there. Fortunately, we are willing to share our tax secrets.
What Are Tax Deductions?
A tax deduction is an expense that can be subtracted from your taxable income, effectively reducing the amount of income that is subject to taxation. Think of it as a way to lower your tax bill by accounting for certain expenses. Tax deductions can be claimed by both individuals and businesses, and they come in two main flavors: above-the-line and below-the-line deductions.
Above-the-line deductions are subtracted from your gross income to calculate your adjusted gross income (AGI). These deductions are available to all taxpayers, regardless of whether they itemize deductions or take the standard deduction. Examples include contributions to retirement accounts and student loan interest.
Below-the-line deductions, on the other hand, are itemized deductions. You can claim these if your total itemized deductions exceed the standard deduction. These include expenses like mortgage interest, charitable contributions, and medical expenses. By understanding the difference between these types of deductions, you can better strategize to reduce your taxable income.
Here are 6 tax deductions you may not know about.
1. Medical and Dental Expenses
Did you know that claiming your medical expenses could reduce your tax bill? That’s right! So, the next time you start dreading that trip to the doctor, just think of all the tax savings you’re racking up in the process.
If you itemize your deductions, you can deduct unreimbursed medical and dental expenses paid for you, your spouse and your dependents. Qualified expenses include payments for the diagnosis, treatment, or prevention of disease. The downside? You can only deduct the portion of the bill that exceeds 7.5% of your adjusted gross income (AGI).
2. Mortgage Interest
Home ownership can be expensive, but it comes with tax benefits, including the mortgage interest deduction. This significant financial benefit allows homeowners who itemize their taxes to deduct qualified interest paid on their mortgage, potentially reducing their taxable income. This includes being able to deduct the interest paid on a loan used to buy, build, or improve your main or second home.
How much interest you can deduct depends on when you bought your home. If your purchase was before December 15, 2017, you can deduct the interest on mortgages up to $1,000,000 ($500,000 if married filing separately). Those who purchased their home after that point can only deduct the interest on mortgages up to $750,000 ($375,000 if married filing separately). Don’t miss out on deductions! File your taxes with ezTaxReturn now.
3. Charitable Contributions
A small amount can make a big difference when it comes to helping those less fortunate. But you may want to dig a little deeper into your wallet the next time you are asked to donate to charity.
If you itemize and give to a qualified organization, your charitable contributions may be tax deductible. Qualified organizations include nonprofit hospitals and colleges, Veterans’ groups, religious organizations, and more. You must itemize your deductions on a Schedule A to receive this tax deduction. You can make cash donations up to 60 percent of your adjusted gross income.
4. Student Loan Interest
Sick and tired of paying your student loans? Who isn’t?! It’s an extra bill we rack up every month that can be very expensive! Well, we have some news that will make the pill a little easier to swallow.
You can take advantage of the student loan interest deduction, which allows you to reduce your taxable income by up to $2,500 if you have paid interest on your student loans. This deduction does not require itemizing deductions, but there are income limits that must be met to qualify. So paying off your student loan debt can actually pay off!
>>Learn more about how financial aid affects your taxes.
5. Self-Employment Deductions
Being your own boss is great for many reasons. You get to call the shots, set your own schedule, learn invaluable lessons, create job opportunities and more. But being self-employed can also be very costly, especially when it comes to your tax return. This is why it’s important to understand the self-employment deductions that you may qualify to lower your tax bill.
Deductible expenses include:
- Home office deduction: You can deduct $5 per square foot of your space, up to 300 square feet for a maximum deduction of $1,500.
- Work-related vehicle expenses: The standard mileage rate is 67 cents per mile for tax year 2024.
- Health insurance premiums: You can deduct medical, dental and long-term care insurance premiums for you, your spouse and your children who are under 27 years old at the end of the year.
- Office supplies: Any office supplies you use for business can be deducted from your tax bill. This includes computers, printers, internet hosting fees, cloud services, software, phones, paper, pens, etc.
- Self-employment taxes: The self-employment tax rate is 15.3% which breaks down to 12.4% for Social Security and 2.9% for Medicare. You can deduct half of it from your income when you file your federal tax return.
Keep good track of your business expenses throughout the year so you can take advantage of all available deductions at tax time. Accurately tracking these expenses can help reduce your business income and lower your taxable income.
6. State and Local Taxes (SALT Deduction)
According to WalletHub, residents in New York, Hawaii and Vermont have the highest tax burdens in the country. The good news is you can deduct your state and local taxes if you itemize.
You can include the amounts paid for real estate taxes, property taxes, and either income taxes or general sales taxes. You cannot deduct both. The maximum SALT deduction is $10,000 ($5,000 if married filing separately).
Not sure what deductions you qualify for? At ezTaxReturn.com, we offer FREE customer support to answer any questions you have. It’s fast and ez!
Tips for Maximizing Tax Deductions
Maximizing tax deductions requires careful planning and attention to detail. Here are some tips to help you make the most of your tax deductions:
Keep accurate records: Keeping accurate records of your expenses and receipts is crucial to claiming tax deductions. Make sure to keep receipts, invoices, and bank statements to support your deductions.
Itemize deductions: If you have a lot of expenses, itemizing deductions may be the best option for you. This allows you to claim specific deductions, such as mortgage interest, charitable contributions, and medical expenses.
Claim business expenses: If you’re self-employed or own a business, you can claim business expenses as tax deductions. This includes expenses such as business use of your car, home office expenses, and travel expenses.
Take advantage of tax credits: Tax credits are dollar-for-dollar reductions in your tax liability. Claiming tax credits, such as the earned income tax credit or the child tax credit, can significantly reduce your tax bill.
By following these tips, you can ensure that you’re taking full advantage of all available tax deductions and credits, ultimately reducing your tax liability and keeping more of your hard-earned money.
Conclusion
Tax deductions are a powerful tool for reducing your taxable income and lowering your tax liability. By understanding what tax deductions are, how they work, and how to claim them, you can maximize your tax savings and avoid costly mistakes. Remember to keep accurate records, itemize deductions, claim business expenses, and take advantage of tax credits to make the most of your tax deductions. With careful planning and attention to detail, you can minimize your tax bill and keep more of your hard-earned money.
Ready to maximize your tax savings? Now that you know about these lesser-known tax deductions, it’s time to take action and make sure you’re getting the biggest possible refund. With ezTaxReturn, you can file your taxes quickly, easily, and confidently.
The articles and content published on this blog are provided for informational purposes only. The information presented is not intended to be, and should not be taken as, legal, financial, or professional advice. Readers are advised to seek appropriate professional guidance and conduct their own due diligence before making any decisions based on the information provided.
