28 Tax Deductions You May Not Have Been Aware Of

Tax day is coming up fast, and you want to to take advantages of as many tax deductions as you can. You know the typical write-offs, but here are 28 tax deductions you may not have known you could write off.

Must Use Deductions

These are deductions everyone eligible must take advantage of.

1. Standard Tax Deduction

If you did the math and didn’t have enough itemized deductions to get you above $12,400 for singles and $24,800 for marrieds individuals filing jointly. If you are filing as head of household, you can deduct $18,650.

2. Reinvested Dividends

Do you have a Betterment account? Betterment is a completely automated investing tool that's perfect for beginners and hands-off style investors. They use advanced strategies to earn you a higher investment return than you could on your own. Do you sometimes get a notice that they have reinvested dividends for you?

Each of those reinvestments increases your tax basis in the fund. That lowers your amount of taxable capital gains when you eventually sell your shares.

When you finally do sell, don’t neglect to include the reinvested dividends in your cost basis, which you subtract from the gains from the sale to determine your gain, you are overpaying your taxes.

3. Child Care Credit

When you use childcare while at work (not for date night, sorry!) you can take a tax deduction between 20-35% of those costs.

If your company allows you to use pre-tax money for child care costs, that may be a better option than taking the deduction though. Suppose you are eligible for a 20% credit but are taxed at 25%.

In that case, the credit would be the better choice.

If you use a reimbursement account, you can avoid federal income tax and the 7.65% Social Security tax. No double-dipping though.

Expenses paid with pre-tax money can’t be used to take advantage of the tax credit. However, the pre-tax amount you can use is just $5,000.

The tax credit is up to $6,000 for two children, or more so you can claim that additional $1,000 and doing so will cut $200 or more from your tax bill.

4. Parents as Dependents

If you care for aging family members like parents, grandparents, aunts, and uncles, etc., those people may qualify as dependents, even if they don’t live with you.

To claim these family members as dependents, you and they must meet specific criteria like income requirements.

The dependent person can’t have an income over $4,050.

5. Medical and Dental Expenses

If you, a spouse, or your dependents had medical or dental expenses that exceeded 10% of your adjusted gross income, you can deduct them.

If you or your spouse are older than 65, you can deduct those expenses if they exceed 7.5% of your adjusted gross income.

Eligible expenses include some types of preventative care, surgery, medical and dental visits, mental health visits, prescribed medications, contact lenses and glasses, and travel costs associated with medical or dental care.

Things not eligible for this deduction include cosmetic procedures, dietary supplements (boo!), and gym memberships (boo!).

If you do not have insurance through an employer, as in the case of freelancers, you can deduct your health care premiums if they exceed 7.5% of your gross adjusted income.

6. HSA Contributions

If you have a high deductible health insurance plan and use a Health Savings Account, you can claim a tax deduction on contributions you made to the account.

You cannot claim any contributions your employer makes.

HSA’s are a great tax shelter.

7. IRA Contributions

You cannot deduct Roth contributions, but you may be able to deduct Traditional IRA contributions provided that neither you nor your spouse has an employer-based retirement account. You can deduct up to the entire amount of the allowed contribution which for 2020 is $5,500 or $6,500 if you are over age 50.

8. State Taxes

If you owed money when you filed your state tax return for 2019 and paid them in the spring of 2020, be sure to deduct them on your 2020 federal return.

Lesser Known Deductions

Okay, we covered the tax deductions many people are familiar with. Now let’s include some lesser-known deductions.

9. Student Loan Interest

Paid by your parents. If your parents paid your student loan debt, the IRS treats that money as a gift to you that you then used to pay that loan.

As long as your parents are not claiming you, you can qualify to deduct up to $2,500 of student loan interest that they paid.

10. Student Loan Interest Part II

You can deduct some or all of eligible student loan interest. The amount you can deduct is $2,500 or the amount you paid, whichever is less.

This deduction cannot be claimed if you are married but don’t file jointly or if you or your spouse are claimed as a dependent on someone else’s return.

11. American Opportunity Credit

This credit applies to four years of college. The maximum allowed credit is $2,500, 100% for the first $2,000 of eligible college expenses and 25% on the next $2,000.

The entire $2,500 credit is available to those whose modified adjusted gross income is less than $80,000 for singles and $160,000 for marrieds. If you make over those amounts, this is a phase-out.

12. Further Education

College isn’t just for the youngsters, and neither are education-based tax deductions. The Lifetime Learning credit can be claimed for yourself or your spouse and for more than four years.

The credit is worth up to $2,000 per year and can be claimed for education expenses that lead to new or improved skills.

So if you were considering taking some classes to improve your side hustle, or land a better paying job, here is some incentive!

This credit phases out between $55,000-$65,000 for singles and $110,000-$130,000 for marrieds.

13. Tuition

You can deduct up to $4,000 of eligible higher education expenses for yourself, spouse, or a dependent. If you are married but don’t file jointly or if you are claimed on someone else’s return, you can’t qualify for this one.

14. Saving for College

Contributions to a 529 College Savings Plan is not deductible on federal taxes, but several states do allow you to deduct them.

15. First Job Moving Expenses

Head’s up all you recent college grads! If you moved more than 50 miles to take your first job, you can deduct the cost to get you and your stuff to your new location.

The write-offs include 16.5 cents per mile for driving your own car and any parking fees or tolls. You can take this write off even when you don’t itemize.

16. Job Search Expenses

Searching for a job sucks so take some comfort in the fact that you might be able to write off some of the expense.

The job search must be in the same line of work as your current or most recent job, and you can deduct things like transportation, preparing, printing, and mailing your resume, and employment agency fee.

17. Mortgage Points

Mortgage points are a fee you pay the bank when you close in order to get a lower interest rate. If you purchased these points and you itemize, you can deduct the cost of the points in addition to mortgage interest.

18. Home Sale

If you made money selling your home, you can exclude up to $250,000 in gains from your income for singles and $500,000 for marrieds.

19. Save Your Raise

Rather than pocketing a raise, increase your 401k contribution. If it’s a plan funded with pretax money, you can lower your tax bill for 2020. The maximum contribution for 2020 is $19,500 and $6,500 for catch up contributions if you are over age 50.

20. Tax Loss Harvesting

Tax loss harvesting means you sell an investment that has lost money. When you “harvest” that loss, you can offset taxes on income and gains.

Betterment does this for you automatically.

21. Investment Fees and Expenses

You can write off things like investment counseling fees, custodial fees, your safety deposit box, transportation fees to and from an appointment at your financial advisor’s office, attorney’s fees paid to collect taxable income, and the cost to replace lost security certificates.

But seriously, don’t pay fees.

22. Casualty, Disaster, and Theft Losses

If you had household items lost to any of the above, you can deduct their value.

23. Military Reservist Travel Expenses

If you’re a member of the reserves and travel more than 100 miles from your home for duty, you can deduct eligible transportation, meals, and lodging expenses.

24. Work Uniforms

If your job requires specific clothing that isn’t considered everyday wear, you can deduct their cost. Deductible items include things like theater costumes, military uniforms, and protective clothing.

25. Home Office

If you use your home as a primary location for your trade or business, your primary location for meeting patients or clients, as the storage place for inventory or product samples, rental use, or a daycare facility, you can write off part of your home expenses.

26. Car Travel for Business

If you use your car for your job or business, you may be able to deduct costs. You can use a standard mileage rate or the actual expense method which is the real cost to use the car for business.

If you travel for work, you can deduct certain expenses that your employer does not reimburse like transportation, luggage fees, meals, laundry, lodging, and business calls.

27. Charitable Donations

You can deduct cash donations to IRS approved charities for up to 50% of your adjusted gross income. Be sure to have a written record like a bank statement or a receipt from the charity.

Non-cash donations are also deductible. The can be written off for fair market value, the amount you could have sold the items for. If you donate your car, be sure it’s to a qualified charity like a 501(c)(3).

28. Earned Income Tax Credit

The EITC is a refundable tax credit used to help low-income tax individuals supplement their income. The accounts of the credit for 2017 are between $2-$6,600.