Common Tax Deductions You Might Be Missing (For Individuals)

When tax season rolls around, many individuals end up paying more than they should simply because they overlook tax deductions that could significantly lower their tax bill. The good news is that the IRS allows a wide range of deductions that could save you money—if you know where to look. Understanding these deductions and keeping good records throughout the year can make a significant difference in the amount you owe or the refund you receive.

Here’s a look at some common but often overlooked tax deductions that you might be missing out on.

1. Home Office Deductions

With more people working from home, especially post-pandemic, the home office deduction has become an increasingly important way to reduce taxable income. If you work from a dedicated space in your home that you use regularly for business, you may qualify to deduct a portion of your home expenses.

What You Can Deduct:

• Home office space: You can deduct a portion of your rent or mortgage, utilities, property taxes, insurance, and even home repairs. The IRS allows you to deduct based on the percentage of your home that’s used exclusively for work. For example, if your office takes up 10% of your home’s total square footage, you can deduct 10% of the expenses mentioned above.
• Depreciation: You can also deduct depreciation on the portion of your home used for business.

This deduction is available to self-employed individuals and employees who work from home for the convenience of their employer.

2. Charitable Donations

Many individuals are unaware that charitable donations can significantly reduce their tax liability. Whether you donate money, clothing, or goods to a qualified charity, these contributions can be deducted from your taxable income.

What You Can Deduct:

• Cash Donations: If you donate money to a qualified charitable organization, you can deduct up to 60% of your adjusted gross income (AGI) in any given year.
• Non-Cash Donations: Donations of goods, like clothing or household items, can also be deducted. Keep detailed records of what you donate and get receipts for your donations.
• Mileage: If you drive to volunteer for a charity, you can deduct mileage and certain associated expenses.

Make sure the charity is IRS-qualified—donations to non-registered organizations are not tax-deductible.

3. Medical Expenses

Most people are surprised to learn that they can deduct certain medical expenses. If your out-of-pocket medical expenses exceed 7.5% of your adjusted gross income (AGI), you can deduct the portion of those expenses above that threshold.

What You Can Deduct:

• Doctor and hospital visits: Fees for medical care, surgeries, and treatments can be deductible.
• Prescription medications: Out-of-pocket costs for prescribed medications and certain over-the-counter drugs may be eligible.
• Health insurance premiums: If you are self-employed, you can deduct premiums paid for your health insurance plan.
• Long-term care: Premiums paid for long-term care insurance and other related expenses can also be deducted.

Be mindful that cosmetic surgery, non-prescription items, and elective treatments generally aren’t deductible.

4. Education and Student Loan Interest

Investing in your education—or your children’s—can qualify you for various tax deductions that reduce your tax burden.

What You Can Deduct:

• Student Loan Interest: You can deduct up to $2,500 of interest paid on student loans, even if you don’t itemize. This deduction applies to both federal and private student loans.
• Tuition and Fees: For higher education, there are tax credits and deductions available, such as the American Opportunity Credit and the Lifetime Learning Credit, which can reduce the cost of education.
• Employer Education Assistance: If your employer provides education assistance, you can exclude up to $5,250 of that assistance from your taxable income.

Be sure to keep documentation, such as tuition statements, loan interest records, and proof of payment.

5. Childcare Credits

If you have children, you may be eligible for various tax credits that can help offset the costs of child care. While these aren’t technically deductions, they can provide a significant reduction in the amount of tax you owe.

What You Can Claim:

• Child Tax Credit: For each child under the age of 17, you may qualify for up to $2,000 in tax credits.
• Child and Dependent Care Credit: This credit allows you to claim a percentage of your child care expenses, including daycare or after-school programs, so you can work or look for work.
• Earned Income Tax Credit (EITC): If you have a lower income, you may also qualify for the EITC, which can result in a larger refund.

These credits can help reduce your tax liability or increase your refund, so make sure to explore all options available.

Conclusion: Don’t Miss Out on Potential Savings

Tax deductions and credits are often overlooked by individuals who don’t take the time to review their eligible expenses. By understanding and utilizing these deductions, you can significantly reduce your taxable income and increase your potential refund.

However, tax laws are complex and change frequently. A professional tax advisor can ensure you’re not missing out on any opportunities for savings and that you’re complying with all applicable regulations. Velin & Associates, Inc. specializes in providing personalized tax planning and preparation services for individuals and businesses alike.

Contact Velin & Associates today to schedule a consultation and ensure you’re getting the most out of your tax return.

Call us at 323-902-1000, email dmitriy@losangelescpa.org, or visit www.losangelescpa.org for more information.