When preparing your most recent tax return, did you make a list of the most commonly overlooked deductions and check it twice before hitting submit? Probably not. However, you can always file an amended return or be mindful of the following deductions going forward. Keep careful records for any deductions you claim; the IRS will definitely ask to see them if you're audited!
Itemized deductions come in two different flavors: deductions where you can take the whole amount, and deductions that are subject to a 2% adjusted gross income (AGI) floor. For the latter deductions, you must add them all up, subtract 2% of your AGI for the year, and then you can deduct whatever's left over. Other deductions aren't part of the itemized group at all, so you can claim them even if you take the standard deduction instead of itemizing. In the below list, itemized deductions are flagged with (Item) or (Item 2%) at the end of the description, depending on which group they fall into.
Many items related to your home are deductible.
- Points on refinancing: The Internal Revenue Service (IRS) allows taxpayers to deduct any points they assumed for refinancing their home over the life of the new loan. So if your mortgage is for 15 years, you can deduct 1/15th of the total points each calendar year. (Item)
- Casualty losses: Taxpayers can deduct any personal or property losses caused by casualty or theft. However, the amount deducted must account for any received insurance payments. The casualty and theft deduction is also subject to a 10% AGI floor. (Item 10%)
- Commissions for sale or rental of home: Real estate broker fees, title agency charges, and other expenses associated with listing a home for sale or rent are deductible. However, the taxpayer cannot have been a professional working for themselves, meaning that a real estate agent cannot deduct broker fees for selling her own home. (Item)
- Home office: If you're self-employed and use part of your home as your primary office, you can deduct a percentage of your rent and upkeep expenses based on the percentage of your total home space you use for your business. Alternatively, you can take a safe harbor deduction of $5 per square foot up to a maximum of 300 square feet. (Item 2%)
Work-related expenses provide plenty of opportunities for deductions.
- Educator expenses: Teachers, classroom aids, and principals for kindergarten through grade 12 can deduct the costs of any supplies or materials they paid for out of their own pockets for teaching purposes, up to a maximum of $250. (Item 2%)
- Uniform costs: If you are required to wear a uniform to work and are unable to wear that uniform in any other capacity, you can deduct the costs of its purchase and cleaning. Refer to IRS Publication 529 for more detailed information. (Item 2%)
- Job seeking costs: Travel expenses and fees paid for memberships to online job boards and employment agencies and resume printing costs can be deductible. However, the deduction is available only if the taxpayer is seeking a job in his or her current field, notes IRS Publication 529. (Item 2%)
- Moving expenses: Taxpayers who move for job-related reasons can deduct the cost of their moving expenses, including any accompanying supplies if they meet the distance and time test outlined in IRS Publication 521. The amount of the deduction must include any reimbursements they receive from their employer. It is available regardless of whether the move was voluntary.
- Union dues: Fees charged by unions are deductible, regardless of the type of union or if membership is required to work in your field. (See IRS Publication 529 to learn more). (Item 2%)
- National Guard or military reserve travel: Members of the National Guard or military reserve may write-off travel expenses if they have to attend a meeting or drill that is more than 100 miles away from their place of residence. (Item 2%)
- Social Security taxes: Self-employed taxpayers who are required to fork over the entire 15.3 percent to cover Social Security taxes are able to deduct half of this amount since they don't have an employer to split the expense with.
If you have medical expenses, they may be deductible. However, itemized medical deductions are subject to a 10% AGI floor, or 7.5% if you or your spouse are 65 or older.
- HSA contributions: If you have an HSA account, any contributions you make up to the annual maximum are completely deductible.
- Nursing home medical expenses: Care provided in nursing homes that exceeds the normal standards of the home, and which incurs an additional expense, is deductible. This deduction is available even if the taxpayer was not a full-time, long-term resident of the home. (Item 10%)
- Medical supplies: Medical expenses for orthopedic shoes, crutches, wheelchairs, eyeglasses, and contact lenses are deductible. The amount of deduction must be reduced by any reimbursements the taxpayer received. (Item 10%)
- Smoking cessation or weight loss programs: Physician-recommended or ordered smoking cessation or weight loss program costs are deductible. The taxpayer must see a physician and receive either a referral or a prescription to deduct program registration or attendance fees and supplies. (Item 10%)
- Mileage and travel: You can deduct the cost for transportation to and from medical-related destinations, either by deducting your out-of-pocket expenses for the transportation (gasoline, etc.) or by using the standard deduction of $0.19 per mile. If you travel to another city for medical reasons, you can deduct up to $50 per person per night for lodging expenses. (Item 10%)
Donating to charity is its own reward, but it also provides opportunities for tax deductions.
- Out-of-pocket costs: Taxpayers can deduct any costs associated with their charitable donations. This means that the costs of ingredients or materials for anything they made or produced for a charity is deductible. (Item)
- Mileage: You can deduct $0.14 per mile you drive that's related to work you're doing for a charity. You can also deduct parking and tolls for the trip as a separate deduction. (Item)
Some educational expenses may be deductible.
- Higher education expenses: If you, your spouse or a dependent is attending college, you can deduct a maximum of $4,000 for costs associated with attending school. This includes expenses for books, meals or other associated fees and is in addition to any deduction for student loan interest payments. Note that if your income exceeds $65,000 for the year ($130,000 for joint filers) the maximum deduction drops to $2,000. If your income exceeds $80,000 ($160,000 for joint filers), this deduction is not available at all.
- Job-related education expenses: If you take a class, buy books, or incur any other expenses while learning something related to your current job, you can deduct all of those expenses. (Item 2%)
Personal and Financial Deductions
There are many other personal and financial deductions available as well.
- state income or sales taxes. Usually, state income taxes are the larger of the two, but in states with no income tax, the savings the sales tax option provides can be substantial. You can also deduct local taxes, such as real estate and property taxes. (Item)
- Tax and investment expenses: Taxpayers who pay for tax preparation services from an accountant or other licensed professional, or who seek assistance in establishing retirement investment accounts can deduct the costs of those services. Legal fees are included in this category. Any expenses related to investments, such as management fees or even subscriptions to investment newsletters, are similarly deductible. You can even deduct safe deposit box fees. (Item 2%)
- Net capital losses: If you sell an investment at a loss, you can deduct the amount of your loss - but only to the extent of your capital gains for the year plus $3,000. Any excess losses can be carried over into future years.
- Pay for jury duty: If your employer forces you to turn over any jury duty pay received to avoid double-compensation, you can deduct this amount from your taxable income. That way, you will avoid taxation on an amount that did not benefit you. Note that this is only an option if you reported the jury duty pay as income in the first place.
- Legal fees associated with alimony: Per IRS Publication 529, any legal expenses incurred to collect taxable alimony are deductible. (Item 2%)
Claiming Your Deductions
If you aren't sure whether to itemize or not or what deductions are available to you, seek legal or financial assistance with your tax return. After all, the fees associated with preparing your taxes are deductible!