Tax laws are constantly changing. It’s hard to keep up with what you can deduct, what you must report and all of the other moving parts of the intimidating process that is tax filing. In recent years, CNBC reports that Americans have been taking far less itemized deductions compared to 2017 and before, as a result of the Tax Cuts and Jobs Act, which doubled standard deductions. That’s just one example of how a singular change leads to massive shifts in how people file taxes. But it’s always been confusing to know what one can write off. The IRS reports that one in five people who are eligible for the Earned Income Tax Credit (designed for low or moderate-income taxpayers) fail to take it.
If you pay a tax professional to help you out, the hope would be that they don’t miss a thing. But nobody is perfect and a little human error can mean to a big financial loss. There are a lot of things you pay for every year that you could write off, but perhaps don’t. Here are the most overlooked tax deductions.
Earned Income Tax Credit
Let’s start by taking a look at the Earned Income Tax Credit (EITC) mentioned above. Designed for low to moderate-income taxpayers, it is a refundable tax credit – so not technically a deduction. The refund size depends on the filing status and there is a range from $1,502 to $6,728. However, recently, allowances for this refund have expanded, with many individuals losing jobs, taking pay cuts and getting fewer hours at work in 2021. As a result, many people who are eligible for this refund don’t know it. Speak to your tax professional to see if you are eligible. You do need to file a tax return to get it, even if you made no income in 2021.
Charitable Odds and Ends
It’s easy to recall that you cut a $1,000 check for a charity of your choosing. What’s not so easy is tracking all of the ingredients you bought to make cookies for philanthropic bake sales, or how much you spent on gas volunteering to drive a group of senior citizens from their homes to their doctor’s appointments. If you’re a generous individual, you might have accrued quite a few out-of-pocket expenses on charitable efforts this past year, and you can write those off.
This is how much the government wants you to stop smoking: they’ll pay you for it. Sort of. You can take deductions for “participation in a smoking-cessation program,” according to the IRS. This includes drugs used to alleviate nicotine withdrawal symptoms. There are limits to the deduction. The IRS states, “You may deduct only the amount of your total medical expenses that exceed 7.5 percent of your adjusted gross income.”
The same law that allows you to deduct expenses related to quitting smoking will also allow you to deduct expenses pertaining to losing weight. If your doctor diagnoses you with a condition – such as obesity – that requires you to lose weight, you can deduct expenses associated with weight-loss programs. This will not include payment for regular items such as food or gym memberships.
Student Loan Interest – No Matter Who Paid
Parents paying a student loan that’s in their child’s name is a common practice. With many lenders basing payment on the borrower’s income, having a student – with zero to little income – fill out the application is the obvious way to get a cheaper loan. Then, sometimes their parents step in and make those actual payments. In the past, if this were the arrangement, nobody could get a tax break. But recently, those with student loans in their names but paid by someone else can start taking the student loan interest deduction of up to $2,500.
The majority of taxpayers can no longer write off moving expenses, even when they move for a job. But one group that can still take this deduction is active military personnel. If you are in the military and the government required you to move for a job, you can write off everything from the travel expenses to the lodging to the airline fees paid to get your pets from point A to point B to the cash paid to the guys who lifted your couch up the stairs.
Many parents struggle with the decision of whether or not to have one person stay home, or to pay for childcare. Depending on the lost income of the stay-at-home parent, sometimes getting a babysitter would be costlier than just leaving work. However, it doesn’t have to be an either-or situation. If you pay for childcare so that you can go to work, you likely qualify for the child and dependent care credit. This is a good time to look into this credit because its benefits recently increased. For starters, the qualifying amount of expenses jumped from $3,000 to $8,000 per individual and from $6,000 to $16,000 per household. Furthermore, in previous years, the benefit was reduced for individuals making as little as $15,000 a year, but that number has increased to $125,000 per year.
Sales taxes can be very high in certain areas, and they become substantial on large purchases. If you paid a hefty sales tax on a big-ticket item like an engagement ring, a boat or a motorcycle, you could write this off. The IRS has a helpful sales tax deduction calculator to help you determine how much you can write off. According to their website, “Your total deduction for state and local income, sales and property taxes is limited to a combined, total deduction of $10,000 ($5,000 if married filing separately).”
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