The IRS gives U.S. taxpayers a gift each April: legal tax deductions. The government created a complex tax system, but within that code there are many legal tax deductions that allow you to pay less taxes and keep more money in your pocket.
The IRS clearly explains all of the tax deductions on the IRS.gov website. It's a solid resource for taxpayers to discover ways to maximize their deductions and to get up to date on the tax changes for 2015. To get started, you can click through here to see 30 tax deductions for 2015 that the average taxpayer can claim.
1. The Personal Exemption Tax Deduction
You're allowed to claim one personal exemption for yourself and one for your spouse if you're married. This exemption holds as long as no one else can claim you as a dependent on his tax return. If another person can claim you as a deduction, you can’t claim yourself. The 2015 personal exemption is $4,000 each.
If you’re single and earn more than $258,250, the personal exemption tax deduction begins to phase out. It's completely eliminated for singles making more than $380,750. For married couples filing together, the exemption phase-out range is between $309,900 and $432,400.
2. The Standard Tax Deduction
The standard deduction amount is subtracted from your adjusted gross income (AGI), and it reduces your taxable income. You can choose either the standard tax deduction or itemized deductions, but you can't claim both on your tax return.
For singles, the standard deduction for 2015 is $6,300. For couples who are married filing jointly, the standard deduction is $12,600. To choose the best option, figure out your deductions using both methods and choose the one that allows you to pay less taxes, according to the IRS.
There are also deductions you can take without itemizing. “Since most people take the standard deduction instead of itemizing, their deductions are limited to income adjustments, [also known as] above-the-line deductions," said S. Kay Bell, author of "The Truth About Paying Fewer Taxes" and owner of Don’t Mess With Taxes.com. "These help reduce your gross income to your adjusted gross income amount.”
Bell highlighted the next six tax deductions for those who take the standard tax deduction.
3. Travel Costs for Military Reserve Exercises
Military reservists can deduct travel costs for training exercises if they must travel more than 100 miles and stay overnight. This includes lodging and half the cost of meals. The amount of qualifying reservist expenses is limited to the regular federal per diem rate (for lodging, meals and incidental expenses) and the standard mileage rate (for car expenses), plus any parking fees, ferry fees and tolls.
4. Student Loan Tax Deduction
You can deduct up to $2,500 in interest on a loan for qualifying college costs, as long as your modified AGI is less than $65,000 ($130,000 for joint returns). If you make more than $80,000 ($160,000 if filing a joint return), this deduction is not available.
5. Alimony Tax Deduction
If you made payments to a former spouse under a divorce or separation instrument, you might be able to take this deduction. The IRS does not consider child support or non-cash property settlements to be alimony; however, there’s no limit to the amount of the alimony tax deduction.
6. Education Tuition and Fees Tax Deduction
If you, your spouse or a dependent was a student in 2015, you could be eligible for the tuition and fees deduction. This tax deduction includes the cost of qualified tuition, fees, books and supplies. The taxpayer can deduct up to $2,000 or $4,000, depending on AGI. Bell noted that this deduction "probably will be renewed for the 2015 tax year, but you never know with Congress.”
7. Educator Expenses Tax Deduction
If you are an educator and pay for items needed for your job, you might be eligible for the educator tax benefit. With this deduction, you can deduct up to $250 in out-of-pocket costs that teachers and other eligible school employees incur to help with classroom lessons.
8. Employee Moving Expenses Tax Deduction
If you changed jobs or employers, then you might be able to deduct your moving expenses — with conditions. Your move must coincide with the start of a new job, and your new job must be further than 50 miles from your prior home.
If you are an employee, you must work full time for at least 39 weeks for the first year after you move. If you are starting your first-ever full-time job and meet the distance requirement, you can deduct the moving costs. There’s no limit to the employee moving expenses tax deduction.
9. Pet Moving Expenses Tax Deduction
Believe it or not, if Fido is also moving for your new job, those moving costs could also be tax deductible. For example, if your employment-related move is 50 or more miles away, you might be able to deduct your pet’s shipping costs.
10. Self-Employed Health Insurance Tax Deduction
Employees aren't the only ones who can benefit from deductions; the self-employed are also rewarded with many tax deductions. Just make sure to keep accurate records for verification. People who are self-employed, or even have an entrepreneurial side job, can deduct health insurance premiums — as long as they're not eligible to participate in an employer-subsidized health plan.
11. Self-Employment Tax Deduction
If you’re self-employed and earn more than $400, you must pay self-employment taxes. You’re allowed to deduct between 50 and 57 percent of your self-employment tax payments, depending upon your income level. On schedule C, self-employment tax is only levied on your net profit.
12. S Corp Tax Deduction
If you’re self-employed and created an S Corporation, the IRS offers great self-employment tax benefits. You’re allowed to pay yourself a salary and leave the remaining profits in the corporation or distribute them to the corporate shareholders. Self-employment tax is only due on the salary portion of the profit.
13. Home Office Tax Deduction
If you work at home in a designated area, you might be able to claim the home office tax deduction. This tax deduction is accessible to homeowners and renters in a variety of businesses. Review the IRS requirements to claim the deduction. Make sure to keep detailed records to substantiate the home office deduction.
14. Job Search Tax Deduction
Taxpayers who are looking for a new job in the same line of work might be able to deduct some job-hunting expenses. Unfortunately, you can't deduct expenses incurred while looking for a job in a new occupation, if you're looking for a job for the first time or if there's a substantial time gap between when you were last employed and when you began looking for a job.
However, if you're looking for a job in the same occupation, you might be able to deduct travel and mailing costs related to your job search. You might also be able to deduct any employment and outplacement agency fees.
15. Traditional IRA Tax Deduction
If you or your spouse aren’t covered by a retirement plan at work and are younger than age 70½, you can deduct the full amount of a traditional IRA contribution. You can contribute $5,500 per year, or $6,500 if you’re age 50 or older, or 100 percent of your compensation — whichever is higher.
If your spouse is covered by a workplace retirement plan, your filing status is married filing jointly and your AGI is $181,000 or less, you can deduct the entire amount of the traditional IRA contribution. Your IRA tax deduction will be limited if your family income is greater than $181,000 and less than $191,000. There’s no IRA deduction with family income above $191,000. Those families with an AGI of less than $10,000 might receive a partial deduction.
16. Roth IRA Tax Benefit
Although you can't deduct the initial contribution to a Roth IRA, all earnings and capital gains within the Roth IRA account are free of taxes. Additionally, qualified distributions from a Roth IRA account are tax-free. This works out to be a great tax benefit over the lifetime of the account.
There are several eligibility constraints for your Roth IRA, to which you can contribute up to age 70½. Your combined traditional and Roth IRA contributions can't exceed $5,500, or $6,500 if you’re age 50 or older. As long as you are married filing jointly or are a qualifying widower and your income is less than $183,000, you can contribute the full amount. The amount is reduced with income between $183,000 and $193,000 and is eliminated with income greater than $193,000.
Singles can contribute the full amount up to an AGI of $116,000 and a reduced amount between $116,000 and $131,000. A single individual with income above $131,000 is ineligible to contribute to a Roth IRA.
17. Tax Deductions for Dependents
This tax deduction applies to children or qualified adults who live with you and are under your financial support. You can claim an exemption for every dependent under your care — $4,000 for each qualifying dependent.
"To qualify for the exemption, the child must live with you more than half of the year and be under 19 at the end of the year, or under 24 and a full-time student for the year," according to the IRS.
18. The Child and Dependent Care Credit
Even better than a tax deduction is a tax credit. If you paid for the care of a qualifying child or other dependent so that you and your spouse could work, you might qualify for the child and dependent care credit.
19. Health Savings Account Contribution Deduction
The health savings account (HSA) contribution is designed to help Americans with high deductible healthcare plans pay for medical costs with pre-tax dollars. According to the Affordable Care Act, you can deduct the full amount of the contributions that you make into this account with your own personal money. For 2015, the HSA contribution limit is $3,350 for an individual, $6,650 for a family and an additional $1,000 catch-up contribution for those over age 55.
20. Gambling Losses Tax Deduction
If you win at bingo, blackjack, roulette or any casino game, your winnings are taxed. For the unlucky, don’t forget to deduct your gambling losses from your 2015 tax return. You can deduct the amount of your losses up to the amount you won as an itemized deduction.
21. Medical Expense Tax Deduction
There are several expected and surprising circumstances when medical expenses might be deductible. Certain qualified medical expenses are deductible if they exceed 10 percent of your AGI for the year. The deductible expenses include preventive care, treatment surgery, dental and vision care. Even psychologist and psychiatrist visits can be included. For those over age 65, the deductible threshold drops to 7.5 percent of your AGI.
22. Breast Enlargement Tax Deduction
Although cosmetic plastic surgery typically isn’t a tax-deductible item, some cases of breast enlargement can be eligible. If you’ve had a medically necessary mastectomy, then a breast reconstructive surgery could qualify for a tax deduction.
23. Pregnancy Test Tax Deduction
As long as your medical expenses exceed the 10 percent threshold, you can include pregnancy tests, legal abortion costs, breast pumps and supplies, sterilization and medically prescribed birth control pills. You can also deduct expenses for fertility-enhancing surgeries and procedures.
24. Wig Tax Deduction
A wig can also be tax deductible as a medical expense. If the physician recommends the wig after you experienced hair loss due to a medical condition, the wig could be categorized as a medical tax deduction.
25. Medical Tax Deduction for Clarinet Lessons
If you have an overbite, then you might be eligible to deduct the cost of clarinet lessons as a medically approved dental expense. The IRS has previously allowed individuals with overbites to claim a medical deduction for clarinet lessons.
26. Stop Smoking Medical Expenses
If you're trying to kick your nicotine habit, any prescription smoking cessation program can be considered a medical tax deduction. Prescription cessation deductions can include prescription drugs as well as a medically supervised plan. If transportation is required for you to participate in a program, those costs might also be considered eligible.
27. Charitable Vacation Tax Deduction
If you're considering a volunteering vacation, find out whether the sponsoring organization is a 501(c)(3) tax-exempt organization. If so, and you meet the IRS guidelines, part of your volunteer vacation expenses can be fully or partially eligible for a charitable tax deduction. Make sure to keep a journal of your activities to substantiate your claim.
28. Work Uniform Tax Deduction
If your job requires you to wear a uniform for work, you might be able to deduct the cost and maintenance expenses of the clothing. Eligible individuals include delivery workers, healthcare workers, firefighters, police officers, professional athletes and possibly musicians and entertainers. If the clothes are worn outside of work, they don’t count.
29. Mortgage Interest Tax Deduction
Any interest you pay for the purchase of a home generally can be deducted. This tax deduction also includes points, mortgage insurance premiums, and home equity loan payments for your primary or secondary residence.
30. Deductible Taxes
There are four types of deductible non-business taxes. They include state, local, and foreign income taxes; state, local, and foreign real estate taxes; state and local personal property taxes; and state and local general sales taxes. These taxes can be claimed as an itemized deduction on Schedule A.