10 Commonly Missed Tax Deductions and Credits You Shouldn’t Overlook

Overlooking commonly missed tax deductions could mean parting with more of your hard-earned money than necessary. Every year, countless Americans miss out on a valuable tax credit or deduction that could save them substantial money. Working with a financial advisor well-versed in smart tax planning strategies will help you plan for the deductions most applicable to your situation. 

Here are ten (10) tax deductions many people miss.

1. Medical and Dental Expenses

You must closely monitor medical and dental expenses when considering potential deductions. However, if your total medical expenses exceed 7.5% of your adjusted gross income (AGI), you can deduct the amount above this threshold.

These expenses encompass payments for doctor visits, surgeries, preventative care, and dental procedures. Premiums for long-term care insurance also qualify for this deduction. It is essential to keep detailed records of all medical-related payments, as they can save your tax bill considerably.

2. Out-of-Pocket Charitable Contributions

Charitable contributions go beyond large cash donations. If you have supported charities through small acts, like baking for a fundraiser or purchasing stamps for a charity mailing, those expenses also count.

For those who use their vehicles for charitable work, the IRS allows you to deduct actual gas costs or claim a standard rate of $0.14 per mile. The key is to keep meticulous receipts and documentation for these expenses so you can claim them precisely on your tax return.

3. Tax Deduction for Jury Pay

If you served on a jury and your employer required you to give them your jury pay while still providing your regular salary, you can deduct the amount of jury pay you surrendered to your employer. Since jury pay is taxable income, deducting what you give to your employer ensures you are not taxed on money you did not keep.

4. Deduction for Moving Expenses for Military Personnel

Since 2018, the opportunity for most taxpayers to deduct moving expenses has disappeared, but one group still benefits from this provision: military personnel on active duty. You’re in luck if you’re a service member relocating due to a military order.

Not only can you deduct your moving expenses, but provided the move is permanent and not reimbursed by the government, any qualified moving expense reimbursements are tax-free. Ensure that you keep track of all related costs, from family travel and lodging to transporting household goods, vehicles, and even pets, as they could significantly lower your tax burden.

5. Mortgage Points Deduction

Lowering your annual tax liability could be easier than you think, mainly if you have overlooked the potential deductions of mortgage points. Like the more commonly deducted mortgage interest, mortgage points—which may appear on documents such as loan origination fees, maximum loan charges, loan discount, or discount points—can be written off on your tax return if you are itemizing.

When you pay over $600 in mortgage interest over the year, your lender will send you a Form 1098. This vital form will tally your mortgage interest and any mortgage points you have paid. However, it is essential to understand that the tax-deductible amount you are entitled to sometimes aligns differently than the numbers on this form.

The IRS lays out specific stipulations about the deductibility of mortgage points. Generally, you can claim these points up front, but there are exceptions. For instance, if your points relate to the refinancing of your mortgage or are associated with a second property, the IRS typically requires you to spread the deduction throughout the loan.

To take the guesswork out of your situation, the IRS offers an online flowchart to confirm your deductibility for the tax year 2023. Leveraging this resource can clarify which deductions you qualify for, ensuring your tax planning is thorough and accurate.

6. Deducting Gambling Losses

If you were not lucky this year, the IRS allows a tax deduction for gambling losses to offset taxable winnings. This deduction applies to losses from the lottery, casinos, and even sports betting. However, you can only claim this deduction if you itemize and cannot deduct more than your winnings. This tax deduction is a way to recover money lost in pursuit of those big jackpots.

7. Tax Deductions for Volunteers

When you dedicate your time to volunteering and incur travel expenses to support your chosen charity, you’re doing more than just giving back—you are also potentially reducing your taxable income. The IRS recognizes those out-of-pocket expenses for travel as deductible, as long as the trip is focused on a charitable activity, without significant personal leisure or vacation components.

Ensure your journey aligns with IRS guidelines, maintaining a core emphasis on the charitable purpose throughout. Keep a diligent record of all expenses related to your charitable travel: this includes public transport fares, a log for car mileage at the rate of $0.14 per mile designated for charity work, and any incidental costs like parking fees and toll fees. These meticulous records will prove indispensable when claiming your deductions and demonstrating the philanthropic intent of your travels.

8. Student Loan Interest Deductions

Many individuals need to be aware they can deduct interest paid on student loans, even if someone else, such as a parent, has made the payments. This deduction can lower your taxable income by up to $2,500. It is essential to understand that you qualify for this deduction only if you are legally required to pay the interest and have made the payments during the tax year.

9. State Sales Taxes

City of Buffalo sample tax bill
Source: tax.ny.gov 

Most people focus on their income rather than their expenses in the tax realm. However, the state sales tax deduction is a significant opportunity, particularly for residents in states without an income tax. You have the option to deduct state and local sales taxes instead of state and local income taxes. This could be advantageous if you have made sizable purchases such as a vehicle or home improvements.

There are two methods to claim this deduction: using the IRS’s tables for your state or keeping a record of all sales tax you have paid throughout the year. The Sales Tax Calculator, from the IRS can help you determine your deductible amount. It is important to remember that the total of your itemized deductions for all state and local taxes is capped at $10,000 per year.

10. Retirement Savings Contribution Credit (Saver’s Credit)

Saving for retirement offers financial rewards beyond building your nest egg. The Saver’s Credit is a tax break that allows lower-income individuals to reduce their tax bill by up to $2,000 ($1,000 for single filers) based on contributions to retirement accounts like IRAs and 401(k)s. The credit amount and eligibility depend on your income and filing status.

Be Mindful of These Often Overlooked Deductions

To summarize, here are the key points:

• Deduct state sales taxes, especially if you live in a state without income tax.
• Adjust your tax basis for reinvested dividends to reduce capital gains.
• Keep track of charitable contributions and out-of-pocket expenses—they count.
• Pay attention to student loan interest deductions, even if paid by someone else.
• Military members moving for duty can deduct their moving expenses.
• Low-to-moderate income earners may benefit from the Saver’s Credit.
• Gambling losses can offset winnings, but only to the extent of the winnings.
• Jury duty pay given to your employer is deductible.
• Medical expenses above 7.5% of your AGI can be deducted.

Getting it right with tax credits and deductions requires attention to detail and thoroughness. By being mindful of these often overlooked deductions, you improve your chances of maximizing your tax return and retaining more income. Don’t miss out on potential tax savings—consider consulting with a financial advisor to plan for—and claim—every deduction you are eligible for.