Depending on your employment situation, tax season can be exciting, or it can be daunting. If you’re a regular employee expecting a large tax return, then you’re likely excited for tax time. However, if you’re self-employed or a business owner, tax season can be stressful.
Tax Deductions You Should Claim
No matter what your employment situation, there are tax deductions you need to know about that can help reduce your tax burden and may even increase your return. With the help of professional tax software, you can increase your tax return even more. Here are the tax deductions you should claim next tax season.
State Sales Tax
The states that don’t impose income tax are:
- Alaska
- Florida
- Nevada
- New Hampshire
- South Dakota
- Tennessee
- Texas
- Washington
- Wyoming
If you live in one of these taxes, then writing off state sales taxes makes sense for you. In these states, you’ll choose to deduct either state and local income tax or state and local sales tax. In states with no income tax, you can claim the sales tax deduction on your tax return.
Student Loan Interest
If you paid back any student loans since last tax season, then you can deduct the interest paid from your taxes. In the past, you could only get this deduction if you were liable for the debt and paid it yourself. However, now you can get the deduction even if someone paid it for you. A student or former student who isn’t a dependent can qualify to deduct up to $2,500 of the interest paid.
Moving Expenses
Job-hunting expenses that you incur when looking for your first job are not deductible, but moving expenses might be. If you moved over 50 miles, you could deduct a certain amount per mile to get your stuff to your new home. It’s important to note, however, that this deduction isn’t available everywhere. It’s no longer deductible for federal taxes but might be for state taxes.
There is good news for military personnel, though. If you’re an active duty member of the military who is relocating, you can deduct your expenses as long as you aren’t receiving reimbursement from the government for your move, the move is permanent, and your relocation was ordered by the military.
Children and Dependents
The child and dependent care tax credit isn’t necessarily a deduction; it’s a tax credit, which reduces your tax bill dollar for dollar. If you pay your childcare bills through an employee benefit reimbursement account at work, then you might have overlooked the Child and Dependent Care Credit in past years. However, you still might be able to claim this credit if your plan at work only covers up to a certain amount.
Earned Income Tax Credit (EITC)
This tax credit is designed to supplement wages for low-income workers. However, the credit applies to more than just those with low incomes. Those who were previously considered middle class can now be considered low income if they:
- Became unemployed
- Took a pay cut
- Worked fewer hours during the year
The refund you receive will depend on your income, marital status, and size of your household, but you must file a tax return even if you don’t owe taxes to get the credit.
State Tax
If the last time you filed your state taxes, you owed money, then you can include that amount in your state tax itemized deduction on your next tax return. You can also include state income taxes withheld from paychecks for paid via estimated payments.
Medical and Dental Expenses
Even if you have insurance, you might need to pay for your medical expenses out of pocket from time to time. Luckily, these expenses might be deductible for yourself, your children, and your spouse. Expenses that can be deducted include:
- Doctor, dentist, specialist, mental health professional visits
- Hospital care
- Addiction treatment
If you’re self-employed, you can deduct your entire healthcare premium from your taxes.
Residential Energy Credit
If you’ve started making changes to your home to live more sustainably or to reduce your electricity bill, you may qualify for the residential energy credit, which includes:
- Energy-efficient appliances
- Insulation
- Roofs
- Water heaters
HSA Contributions
If you have a health savings account (HSA), your contributions are not subject to federal income tax. In addition, you can also claim a deduction for your HSA contributions.
401(k) Plans
If you’re an employee with a 401(k), every time you put money into your retirement account, you reduce your taxable income, which reduces the amount of money you’re taxed.
IRA
An IRA is another way to contribute to a retirement account. When you contribute to your IRA, you’ll receive a tax deduction.
Home Office
If you regularly work from home, you may be eligible to receive a deduction for associated expenses. These can include utilities, rent, renters insurance, and equipment. You can only deduct costs that are directly tied to your work and only used for work. For example, you can’t deduct a new personal laptop if you will also be using it for video games.
Electric Vehicles
If you purchased a qualified electric vehicle during the year, you might qualify for a tax credit. This credit is available for both cars and motorcycles, whether they’re for personal or business use.
Teaching Supplies
Teachers are known for dipping into their own pockets to purchase items they need for the classroom. While it’s a necessity for making sure their classrooms are stocked with all of the tools their students need, items teachers buy for their classrooms can be deducted. Luckily, these individuals can deduct up to $250 for materials.
Finding Deductions
W-2 employees have fewer options for tax deductions than those who are self-employed or business owners. However, just because they have an employer doesn’t mean they can’t take advantage of some tax deductions. To get the most out of your next tax returns, work with a qualified tax expert or use software that can help you correctly file your taxes with ease, so you never miss out on savings.
Matt Casadona
Matt Casadona has a Bachelor of Science in Business Administration, with a concentration in Marketing and a minor in Psychology. Matt is passionate about marketing and business strategy and enjoys San Diego life, traveling, and music.