By Myles Leva
Last Updated: March 21, 2023
Are you maximizing your tax deductions?
There are many deductions available to individual taxpayers. Most are standardized or surround work, healthcare, and family expenses. Then there are specific deductions such as those for electric vehicles. But before we write an article for electric vehicle owners, let’s go over some of the deductions that cover more people.
Let’s start with some of the most universally applicable tax deductions.
Contributions to retirement accounts alone constitute one of the most common tax deductions.
Everyone can make such contributions, and most employees do so automatically.
If you contribute to a 401(k), traditional IRA, or an HSA, you can claim a tax deduction. Automatic paycheck deductions are normally the way contributions are made. But if you’re self-employed, you can still make contributions and receive your deduction.
Tax-advantaged account contributions are one of the best ways to save on taxes now while preparing for the future. You can reduce your taxable income so you pay a lower rate now while you save.
The personal exemption is one of the most commonly used tax deductions.
It’s a simple, standardized amount that is subtracted from your personal income. You can claim it on your own, or you can claim it as a couple with your spouse. Having dependents further reduces your taxable income.
The personal exemption is common because it is a universal and easy-to-use deduction. Everyone is eligible for it. All that changes is how much an individual or couple may deduct.
The standard deduction is another common tax deduction.
If you don’t want to itemize your deductions with a Schedule A, the standard deduction is the easy alternative. If you are married and filing jointly, you can deduct $25,900 for the 2022 tax year. For single filers, the amount is $12,950.
The only reservation most people have about the standard deduction is whether they save more with it.
If you aren’t sure whether itemizing deductions could save you more, you can fill out a Schedule A anyway. If the amount you can deduct is above the standardized deduction, you know what to do. But if not, you can still claim the standard deduction.
Mortgage interest deductions are one of the most common deductions most middle-class families claim. It can often make itemizing deductions worth it.
Again, you will want to do the math yourself to see whether it’s worth it for you. Your mortgage lender’s 1098 includes the total amount you spent on mortgage interest for the tax year.
Self-employment is becoming more common. However, as most people still work regular jobs, it’s a less common path. But self-employment expense is a broad category that most self-employed individuals qualify for.
The most common deductions are often the easiest. But certain personal situations may make other tax deductions just as easy for you to claim.
Let’s start with charitable donations. Anyone with some money to spare can qualify for a charitable donation deduction. However, you need to itemize your deductions to benefit. But if you donate often or regularly, it’s often worth it to itemize.
Make sure you collect receipts for your donations. You can also deduct donations in goods, not just cash. Other small factors, such as how much you drove on behalf of a charity, can also be deducted.
Student loan interest is tax-deductible in a way that is very similar to mortgage interest. One benefit, however, is that you don’t need to itemize for all of them.
There are a few deductions for higher education that should be of interest to you if you were recently a student. But the interest deduction is also worth claiming on its own.
Education-related deductions are there for a reason. If you can deduct several areas of your studying budget, then you can save significant amounts on your taxes.
There are a few other deductions that are worth considering for many people.
HSAs are becoming more popular. If you’re one of the many people adding to your Health Savings Account, your contributions are tax-deductible. You can save up for healthcare expenses while cutting your tax bill.
If you pay for a health insurance policy, you have another healthcare expense to deduct. Medical expenses can be large and saving and paying for insurance are both rewarded with tax deductions. If you’re self-employed you may be able to deduct 100% of your premium costs.
If you’re a teacher (or any “educator,” more broadly) and pay for your own equipment, you can probably deduct much of it. Out-of-pocket, unreimbursed classroom expenses are covered for up to $250.
As with most deductions, if your spouse is also an educator, your joint deduction can go up to $500.
You may be able to get a tax credit for part of the cost of babysitting. If you hire a babysitter because you are working, looking for work, or are a full-time student, it’s deductible.
While it’s a credit and not a “deduction”, this is actually advantageous for you. You do not need to itemize deductions to receive a credit, and this credit serves the same purpose while you can choose to itemize other deductions or not.
Losing a job is hard, but the time spent finding another one can be costly, too. If you’re looking for a job in your regular field, you may run up some expenses before you find a new one.
You can deduct several separate expenses that arise in these kinds of situations. These include things such as mileage driven to job interviews. If you’re unemployed, these expenses add up and it’s good to have a way to lessen the burden.
The IRS offers a lot of tax deductions. Some of them are meant to be used by a large portion of taxpayers. Others are more situational, like the classroom expenses deductions.
In any case, you should probably be claiming at least a few tax deductions. These are some of the ones you should consider.