Are There Hidden Tax Benefits You’re Missing This Year?
Written by
Kerra Bolton
Edited by
Cory Dudak
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Many taxpayers miss out on the chance to lower their tax bill because they don’t realize they qualify for valuable benefits.
From overlooked deductions and credits to strategic retirement contributions, there are several ways for taxpayers to reduce their tax bill while keeping more money in their pockets. However, many don’t know what they are.
Tax-Smart Retirement Contributions
“Tax planning isn’t just about filing returns — it’s about taking a proactive approach to minimizing tax liability,” said Melissa Pavone, founder of Mindful Financial Partners. She said taxpayers can benefit from their contributions to traditional IRAs and 401(k)s using the backdoor Roth IRA strategy, or through self-employment retirement plans.
“Contributions to pre-tax retirement accounts reduce taxable income while allowing for long-term, tax-deferred growth,” Pavone said. “The 2024 contribution limit for 401(k) plans is $23,000, with an additional $7,500 catch-up contribution for those 50+.”
Pavone said high-income earners who exceed Roth IRA income limits can contribute to a non-deductible traditional IRA and later convert it to a Roth IRA, taking advantage of future tax-free withdrawals.
Freelance or Small Business Deductions
One of the most significant tax benefits for freelancers or small business owners is choosing the right entity structure for their business. “Choosing properly between an LLC or a corporation, and choosing an S-Corporation status, will have a massive tax impact,” said Crystal Stranger, attorney and CEO of OpticTax.com. “But this isn’t a ‘one-size-fits-all’ decision, and there are many pros and cons to each structure.”
Stranger explained, “It should be a careful decision made with a competent advisor who understands both your personal financial situation and your short- and long-term business goals.”
Self-employed individuals often qualify for a home office deduction. “The reason this is so valuable goes beyond being able to take a chunk of the home expenses you normally would be able to take,” Stranger said. “You can also then take more mileage or auto expenses because there are no longer commuting costs to reduce your business mileage when your home is your main office.”
In addition, Pavone said freelancers can contribute up to $69,000 to a Solo 401(k), with an additional $7,500 catch-up contribution for those over 50, or a SEP (Simplified Employee Pension) IRA. Individuals can contribute up to 25% of their earnings, with a maximum of $69,000, for massive tax savings.
Healthcare Costs
Some medical costs are eligible as an itemized deduction, depending on an individual’s tax strategy. “However, since the TCJA (Tax Credits and Jobs Act of 2017) changes to itemized deductions and increasing the standard deduction, this has not been something utilized as often,” Stranger said. “The total amount of itemized deductions needs to exceed the standard deduction before having any value.”
Stranger further explained, “If you do have a year of high medical costs, it is also good to load mortgage interest, property tax and charitable deductions in the same year so that it can be taken to exceed the standard deduction.”
Long-term, uncovered health coverage may also be tax deductible. “One often forgotten tax deduction is uninsured long-term costs for seniors,” said Kevin Quinn, founder and president of Legacy Counsellors, an estate and business planning law firm. “Home health or nursing home care is a Schedule A deduction.”
“It is missed in most cases because many seniors don’t itemize their deductions,” Quinn explained. “It is important to look at the standard deduction versus the Schedule A deduction to see which is most financially beneficial before filing.”
In addition, Quinn said individuals don’t get the deduction on uninsured medical and dental expenses for the first 7.5% of their income. “You can only deduct expenses on the Schedule A 1040 that total more than 7.5% of adjusted gross income,” he concluded.
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