11 Things That You Didn’t Know Were Tax Deductions
Written by
Heather Taylor
Edited by
Ashleigh Ray
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Although it’s not yet April, it’s not too early to start thinking about filing your tax return. There are some tax deductions that taxpayers forget about because they tend to be uncommon. This is especially true for those deductions hidden in the itemized section since many taxpayers opt for standard deductions on their returns.
By the end of January, you should have received your W-2 and 1099 forms from employers and other institutions showing the amount of income you earned in the previous year. To help reduce the amount of income you have to pay tax on, you can claim either the standard deduction, which is allowable for all taxpayers, or itemized deductions, which can make sense if they exceed your standard deduction.
However, several deductions come in the form of tax credits or direct reductions of your income. Knowing about these deductions and claiming them could significantly reduce your taxable income. Here are a few that you may or may not be familiar with that you may be able to use to reduce the amount of tax you owe the IRS this year.
Home Mortgage Interest Tax Deduction
This deduction is available to homeowners paying interest on their mortgage every year, up to $750,000 in principal. This is one you don’t want to miss because it offers opportunities to reduce your taxable income based on how much you’ve paid out in interest on your home loan.
Mortgage interest and property taxes are two of the most well-known, but you can also deduct any points you pay to acquire or refinance a mortgage. Mortgage points are upfront cash payments you make to reduce the interest rate that you’ll pay on your mortgage. As the points are essentially prepaid interest, they are deductible in the same way as regular mortgage interest.
SALT Deduction
No, this deduction isn’t for the amount of sodium in your diet. SALT stands for “state and local taxes.” It’s now limited to a total deduction of $10,000, or $5,000 if married filing separately, but it still allows you to deduct high property taxes and state income taxes.
State and local income taxes have long been used as a tax deduction, but many Americans are unaware that they can opt instead to take a deduction for sales taxes. While the deduction for state income taxes is usually larger, particularly in states like California with high-income tax rates, some states have no income tax at all.
In this case, deducting your paid sales taxes may still allow you to get a tax break, as long as your itemized deductions exceed your standard deduction.
Student Loan Interest Deduction
While some college expenses are tax-deductible, many taxpayers assume that once they graduate, such deductions are no longer allowable. Student loan borrowers who paid interest on a qualified student loan in the 2024 tax year are in luck. According to the IRS, they may deduct up to $2,500 from their taxable income using the student loan interest deduction.
To qualify for this deduction, borrowers must have paid interest on an eligible student loan in tax year 2024 and are under legal obligation to pay this interest. Additional qualifications are outlined on the IRS website for further review.
Educator Expense Deduction
Eligible educators may deduct up to $300 of qualifying education expenses through the educator expense deduction. These may include classroom books, supplies, computer equipment and other supplementary classroom materials. Teachers have long been lauded for working long hours with low pay, but there is at least a tiny bit of relief that some of them can claim at tax time.
Recognizing that many teachers dip into their own pockets to help pay for educational supplies for their students, the IRS allows teachers to deduct up to $300 per year for such costs. Eligible educators, according to the IRS, must be kindergarten through grade 12 teachers, instructors, counselors, principals or aides for at least 900 hours a school year for that tax year.
Gambling Loss Deduction
According to the IRS, gambling losses may be deducted, but only if you track your losses and winnings and itemize these deductions on Schedule A (Form 1040). You cannot deduct losses that exceed the amount of your winnings. You must also report the full amount of your gambling winnings for the year.
Speaking of bad debts, just like a business, if you have a bad debt expense, you can write it off as a deduction. In the case of individual taxpayers, this means that if you lend money to a friend and they don’t pay you back, you can write off the amount of the debt on your taxes. You just have to be in a position to prove to the IRS that the debt is truly uncollectible.
Medical and Dental Expenses Deduction
Using Schedule A (Form 1040), you may deduct just the part of your medical and dental expenses that exceeds 7.5% of your adjusted gross income (AGI).
Unreimbursed Employee Expenses Deduction
If you contributed money to your employer and that contribution was unreimbursed, then you may be able to deduct the expenses through the unreimbursed employee expenses deduction.
However, only a select few categories of employment qualify for this deduction. These include Armed Forces reservists, qualified performing artists, employees with impairment-related work expenses and fee-basis state or local government officials.
Home Office Deduction
Those who use a specific part of their home exclusively and regularly to conduct business may qualify for the home office deduction. You’ll calculate the percentage of your home designated for business activities.
The home office deduction is available for homeowners and renters in all types of homes. Remote or hybrid employees who work from home don’t qualify.
One other potential deduction for the self-employed is to be aware of the major downsides of having to pay both the employer and employee portions of Social Security tax. However, you are allowed to deduct the 7.65% employer portion of Social Security taxes, which can help reduce the sting a bit.
Out-of-Pocket Expenses for Charities
Most taxpayers are aware that they can deduct the value of goods or cash donations they make to charities. However, there are other expenses you can deduct that may not immediately register as charitable donations.
For example, if you buy ingredients to make cookies or cakes for a charity bake sale, the IRS allows you to deduct the cost of those ingredients as a charitable donation.
HSA Contributions
Contributions to IRA accounts and 401(k) plans are some of the most popular deductions available to taxpayers. Yet, the relatively overlooked health savings account, or HSA, also qualifies as a tax-advantaged plan, meaning contributions are tax-deductible.
When combined with the tax deferral of earnings within an HSA and the tax-free withdrawals allowed for qualified distributions, the HSA should be on the radar of more American taxpayers.
Babysitter Expenses
In some limited scenarios, you may be able to deduct the expenses you pay your babysitter. While you can’t get a tax break for going out on a Saturday night and leaving the kids at home, you can write off the cost of a babysitter if you’re looking for work, actually at work or if you’re a full-time student.
You’ll likely need to provide lots of documentation about who you are hiring to watch your kids, and that you aren’t simply trying to write off an everyday babysitter to get a tax deduction.
Heather Taylor contributed to the reporting for this article.
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