Maximizing Tax Deductions and Credits: Don't Overlook These Opportunities

When managing your finances, maximizing tax deductions and credits can be a powerful tool to reduce your overall tax liability. However, many individuals miss valuable opportunities because they are unaware of certain deductions and credits or assume they don't qualify. Let's explore some commonly overlooked tax deductions and credits that could save money.

1. State Sales Tax Deduction

If you live in a state without an income tax, the IRS allows you to deduct state sales taxes instead. Even if your state does have an income tax, this deduction might be worth exploring if you made large purchases, such as a vehicle or major home appliances, during the tax year.

Source: IRS Publication 17, Chapter 22

2. Student Loan Interest Paid by Parents

If your parents paid your student loan interest, you could still claim the deduction of up to $2,500. As long as you're not claimed as a dependent and meet the income limits, the process is straightforward, and the IRS treats this as if you'd paid the interest yourself.

Source: IRS Publication 970, Tax Benefits for Education

3. Educator Expenses

Teachers and other eligible educators can deduct up to $300 for classroom supplies they paid for out of pocket. Married educators filing jointly can double this deduction to $600 if both spouses qualify.

Source: IRS Topic No. 458, Educator Expense Deduction

4. Job Search Expenses

If you were looking for a new job in your current occupation, you could deduct job search expenses. This includes costs for resumes, travel for interviews, and even hiring a career coach. However, this deduction is unavailable if you search for your first job or switch careers.

Source: IRS Publication 529, Miscellaneous Deductions

5. Retirement Savings Contributions Credit (Saver's Credit)

This credit is often overlooked, especially by younger workers. Suppose you contributed to an IRA, 401(k), or other qualifying retirement plan. In that case, you might be eligible for a credit of up to $1,000 ($2,000 for married couples) based on your income and filing status.

Source: IRS Form 8880, Credit for Qualified Retirement Savings Contributions

6. State and Local Property Tax Deduction

Many homeowners deduct their mortgage interest but forget about the property taxes. You can deduct up to $10,000 ($5,000 if married filing separately) in state and local taxes, including property taxes.

Source: IRS Publication 530, Tax Information for Homeowners

7. Health Savings Account (HSA) Contributions

Contributions to an HSA are tax-deductible, and withdrawals for qualified medical expenses are tax-free. Even if your employer contributes to your HSA, you can still add to it up to the annual limit and claim the deduction.

Source: IRS Publication 969, Health Savings Accounts and Other Tax-Favored Health Plans

8. Energy-Efficient Home Improvements

If you made energy-efficient upgrades to your home, such as installing solar panels or energy-efficient windows, you may qualify for tax credits. The Inflation Reduction Act of 2022 expanded and extended several energy-related tax benefits.

Source: Energy Star Program, IRS Form 5695, Residential Energy Credits

9. Charitable Contributions

Beyond cash donations, you can also deduct the fair market value of non-cash contributions, such as clothing or household items. Additionally, you can deduct mileage and certain expenses incurred if you volunteer for a charitable organization.

Source: IRS Publication 526, Charitable Contributions

10. Medical Expenses

Medical expenses exceeding 7.5% of your adjusted gross income (AGI) are deductible. This includes doctor visits, dental and vision care, medical equipment, and even travel costs for medical treatment.

Source: IRS Publication 502, Medical and Dental Expenses

Final Thoughts

Maximizing your tax deductions and credits requires awareness, organization, and sometimes professional guidance. Keep detailed records and receipts for any expenses you plan to deduct. This responsible approach ensures you're in control of your finances and can maximize your savings. Don't hesitate to consult a tax professional for personalized advice.

Disclosure

The information provided in this article is for educational and informational purposes only and should not be construed as tax, legal, or financial advice. While every effort has been made to ensure the accuracy of the information presented, laws and regulations may change, and individual circumstances can vary.

You should consult with a qualified tax professional, financial advisor, or legal expert to address your specific needs and ensure compliance with applicable tax laws and regulations. Duncan Williams Asset Management, its affiliates, and the author are not responsible for any errors or omissions or for the results obtained from the use of this information. Past performance is not indicative of future results.

Sources:

State Sales Tax Deduction
IRS Publication 17, Chapter 22
URL: https://www.irs.gov/publications/p17

Student Loan Interest Paid by Parents
IRS Publication 970, Tax Benefits for Education
URL: https://www.irs.gov/publications/p970

Educator Expenses
IRS Topic No. 458, Educator Expense Deduction
URL: https://www.irs.gov/taxtopics/tc458

Job Search Expenses
IRS Publication 529, Miscellaneous Deductions
URL: https://www.irs.gov/publications/p529

Retirement Savings Contributions Credit (Saver’s Credit)
IRS Form 8880, Credit for Qualified Retirement Savings Contributions
URL: https://www.irs.gov/forms-pubs/about-form-8880

State and Local Property Tax Deduction
IRS Publication 530, Tax Information for Homeowners
URL: https://www.irs.gov/publications/p530

Health Savings Account (HSA) Contributions
IRS Publication 969, Health Savings Accounts and Other Tax-Favored Health Plans
URL: https://www.irs.gov/publications/p969

Energy-Efficient Home Improvements
IRS Form 5695, Residential Energy Credits
URL: https://www.irs.gov/forms-pubs/about-form-5695

Charitable Contributions
IRS Publication 526, Charitable Contributions
URL: https://www.irs.gov/publications/p526

Medical Expenses
IRS Publication 502, Medical and Dental Expenses
URL: https://www.irs.gov/publications/p502

Additional Resources:

IRS Website: https://www.irs.gov/

TurboTax Deduction Finder: https://turbotax.intuit.com/

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