Nobody wants to overpay taxes. However, many people overlook various tax deductions that could have helped them save more money. Whether you are interested in paying fewer taxes or just want to stay in the know, the following tax deductions will ensure that you have the information you need. If you’re a business owner, working from self-employment income, married filing jointly or separately, a full-time student, or have moved into a different tax bracket, this list will help you uncover more than just your standard deduction and develop a few great ideas to minimize your federal taxes.

1. State Sales Taxes

There are a few states such as Wyoming, Washington, Texas, Tennessee, South Dakota, New Hampshire, Nevada, Florida, and Alaska where residents are not required to pay income tax. This means that you get to choose whether to pay local and state income taxes or local and state sales taxes.

If you live in a state that charges income tax, you should opt for local and state income tax deductions. However, residents of income tax-free states can claim sales tax deductions in two ways. They can either track all the sales tax paid during the year or rely on the IRS tables to determine how much state sales tax they have paid on purchases and major renovations.

2. Reinvested Dividends

Although reinvested dividends do not count as a tax deduction, it allows you to subtract the amount you reinvest from stock and mutual fund dividends from your taxable capital gains. If you are an investor, it would allow you to save a ton of money. You should definitely keep an eye on how much you reinvest from dividends received.

3. Charitable Contributions

If you make out-of-pocket charitable contributions, you can deduct the value from your taxes. The fact is that the charitable contributions you make in a year can quickly add up. It makes sense to write off the cost of your good deeds.

A great thing about this tax deduction is that you can include just about every type of out-of-pocket cost including the fuel consumed by your car when you drove for charity or gave up ingredients for a soup to a nonprofit organization.

4. Interest on Student Loan Paid

Whether you have paid interest on a student loan you took out for your studies or on behalf of someone, you can deduct it from the chargeable taxes for the year. As long as a student hasn’t claimed themselves as a dependent, he or she can qualify for a deduction of up to $2,500. If you are a young professional or have recurring student debt, you should be able to benefit from some respite. It is definitely important that you take advantage of this tax deduction for education costs.

5. Moving Expenses

Military personnel still have the option to deduct moving expenses. Previously, every taxpayer was permitted by the IRS to claim moving expenses. As an active duty military member, you should be able to deduct expenses incurred for relocation. But you can only use this tax deduction for eligible expenses if you haven’t received any reimbursement from the government. You are not required to pay taxes on moving expense reimbursements either if the move was permanent and necessary for your job.

Hence, you should look for those receipts in order to claim the costs of travel and lodging as well as for moving household items, shipping your automobile, and other moving expenses. After all, anyone who serves their country deserves a thank you. Why not some form of tax benefit.

6. Child and Dependent Care

Did you know that you can get a tax credit for caring for a child or other dependents? As you might already know, tax credits are a lot better than tax deductions, as they help reduce the total tax charged for the year. 

Some people don’t know about child and dependent care credits. There is a tax-favored reimbursement account in place to provide some relief in caring for your loved ones. You can easily get a tax credit of up to $5,000. You can even claim an additional tax credit if you spend a lot on work-related child care. It is because of this reason that parents can cut their tax bills significantly.

Moreover, the tax credit amount increases for households that have a lower income. The American Rescue Plan was introduced in 2021 and many of the changes it brought to the child and dependent care tax credit are still in place. It increased the credit and made it possible for taxpayers to get a credit if they do not owe any taxes. However, it is important that you consult with an expert to make sure that you take complete advantage of this tax credit.

7. Earned Income Tax Credit

The earned income tax credit is wonderful for many lower-income taxpayers. But there are still many people who do not claim it despite being eligible. The rules can be somewhat complicated, which can deter one from going after it. Since tax credits offer greater value than tax deductions, it is vital that you look more into this.

The maximum amount you can claim varies depending on your filing status. It supplements low to moderate-wage earners. However, you need to understand that the tax credit is not only offered to someone who earns minimum wage. In fact, it provides support to the entire middle class, including white-collar workers who have worked fewer hours during a given year, took a pay cut, or became jobless.

If you are wondering about the exact refund you can receive, you need to know that it all comes down to your family size, marital status, and income. In order to get a refund, you have to file your tax return regardless of whether you owe taxes or not. Furthermore, anyone who was eligible to get the credit previously but failed to do so can file during the year and get a refund for up to 3 tax years.

8. State Tax Paid Last Spring

If you pay quarterly taxes, you can claim the state tax you paid last spring. You should include the amount in the state tax itemized deduction of your return. Also, you can add the state income taxes that had been withheld from your salary. Hence, you should be able to save additional money when you utilize this tax deduction.

9. Refinancing Mortgage Points

When buying a property, you get to deduct the points you paid for obtaining the mortgage in one go. On the other hand, you have to deduct the points over the new loan’s life if you decide to refinance a mortgage.

This would mean that you will be able to deduct about 1/30th of the points for the year in case of a 30-year mortgage. For instance, you would get to deduct about $33 for every $1,000 worth of points paid. Even though it might not seem like a lot, there is no reason for you to overlook this. Moreover, you can deduct all the points that you hadn’t deducted when you pay off the loan because of the need to either refinance it again or sell your house.

10. Jury Compensation Paid to Your Employer

There are some employers who pay their employees a full salary when they take on their civic duty but require them to hand over their jury fees. However, the fees paid to you have to be reported as it is considered taxable income. Therefore, if you have handed over the money to your employer, you should be able to deduct it so that you don’t end up paying taxes on money that you never even got to keep.

Conclusion

Of course, everyone wants to save money at tax time regardless of their income level. But finding the best tax breaks as an individual takes reading, research, and oftentimes, linking up with a good bookkeeper who can uncover every possible avenue of savings. Don’t short-change yourself by missing out on key opportunities and putting yourself and your family in a stronger financial position.

Sound accounts empowers business owners with individually tailored bookkeeping service plans that increase efficiency and help businesses reach their goals. Contact us today with questions and find out how good life can be with a top-notch bookkeeper by your side.

To learn more about tax deductions, check out our frequently asked questions below. 

FAQ

What are the easiest tax deductions?

Some of the easiest tax deductions that you need to know about include state sales taxes, charitable contributions, travel, moving, medical expenses, and interest paid on student loans.

What are some hidden tax deductions?

Now, some of the hidden tax deductions that most people don’t know about are charitable contributions, earned income tax credits, and child and dependent credits, and certain jury duty costs.

What expenses can I write off?

The expenses that you should be able to write off include purchases, home renovation expenses, and work-related childcare costs. 

Who can I talk to for help with saving money on taxes?

A qualified bookkeeper or accountant will be your best advocate. They’ll be able to uncover savings, not only for you as an individual, but for your business as well.