“What can I claim on my taxes?” is a question that tax preparers are used to hearing every tax season, because more tax deductions mean a lower tax bill. When tax time rolls around, you don’t want to miss any of the tax write-offs that you’re eligible for — otherwise, you’re just leaving free money on the table.
1. Traditional IRA Contributions
Traditional individual retirement account contributions are unique in that they don’t have to be made before the end of the tax year to be deducted on your tax return. With traditional IRA contributions, you can make contributions up to your tax filing deadline and have them count for the prior tax year. For the 2021 and 2022 tax years, you can contribute up to $6,000, and if you’re 50 or older, you can contribute $7,000. Although the IRS used to have an age limit on IRA contributions, that policy was discontinued as of tax year 2020, which means you may contribute to your account regardless of your age.
2. Educator Expenses
If you work as a teacher, chances are you spend your own money on supplies for your classroom. This entitles you to special job-related deductions for at least part of the amount you spend on professional education, books, software and other supplies. The deduction is up to $250 in unreimbursed expenses per teacher, so married teachers can each deduct up to $500 if they file jointly. Eligible educators include elementary and secondary teachers, as well as counselors, administrators and aides, who work at least 900 hours during the school year in an elementary or secondary school.
3. Mortgage Points
Most people know that mortgage interest is deductible, but sometimes taxpayers overlook the ability to deduct related expenses like mortgage points. Mortgage points are costs you pay upfront, typically as a form of prepaid interest. If your loan is secured by your main home, the loan is used to buy or build your main home and certain other conditions are met, you can deduct all the points in the year you pay them. In the case of a loan originated after Dec. 15, 2017, that wasn’t used to buy or build your main home, as would be the case with a cash-out refinance or home-equity loan, the points are not deductible for tax years 2018 through 2025.
4. CD Early Withdrawal Penalties
Cashing in a certificate of deposit early usually results in you having to pay an early withdrawal penalty. Though it won’t reimburse you in full, you can use that penalty as a deduction on your taxes. You can claim the deduction even if you don’t itemize, and even if the penalty exceeds your interest income on the CD. For example, if you earned $50 in interest but paid $150 in an early withdrawal penalty, you would report $50 of income but receive a $150 deduction.
5. Student Loan Interest
Taxpayers who owe some portion of America’s $1.75 trillion of student loan debt can use the interest they pay to reduce income taxes. The deduction is capped at a maximum of $2,500, though your maximum deduction might be lower if your income is too high. You can’t claim the deduction if your filing status is married filing separately or you or your spouse, if you’re filing a joint return, can be claimed as a dependent on someone else’s return.
6. Cash Donations
Typically, the IRS doesn’t allow you to deduct charitable contributions unless you itemize expenses. But the Taxpayer Certainty and Disaster Relief Act of 2020 changed that, at least through the end of tax year 2021. The temporary change lets you deduct up to $300 ($600 for married joint filers) in cash donations to eligible charitable organizations. If you donated more than $300 ($600 if married filing jointly), you’ll still have to itemize to claim the full amount. The usual limit of 20% to 60% of adjusted gross income is also lifted through tax year 2021.
7. State and Local Sales Taxes
Itemizing your deductions lets you write off state and local income taxes you paid during the year. Residents of states with low or no income tax can claim the amount paid in state and local sales taxes instead. Use the IRS Sales Tax Deduction Calculator found here if you didn’t save all your receipts.
8. Donations of Goods
Most people remember writing donation checks, but you can also deduct the fair market value of goods such as food, books and household items you donate to a qualified charity. You can also deduct actual, unreimbursed travel costs or 14 cents per mile you drive for charitable purposes. But you still can’t write off the value of the time you spend doing charitable work. And to claim any deductions to charity other than $300 or less in cash for tax years 2020 and 2021 only, you must itemize.
9. Child and Dependent Care Tax Credit
A tax credit is similar to a deduction, but rather than reducing your taxable income, it reduces your tax liability by the full amount of the credit. For 2021, you can claim 50% of qualified child and dependent care expenses. The limit for qualifying expenses is $8,000 for one eligible child or dependent and $16,000 for two or more. The full benefit is available to eligible taxpayers with up to $125,000 in adjusted gross income. Also of note: You can claim the credit for up to $10,500 in contributions to a dependent care flexible savings account.
10. Employee Business Expenses
An employee who must pay expenses for their job can sometimes use those expenses to reduce their taxes – but only if they’re an Armed Forces reservist, a qualified performing artist, a local or government official working on a fee basis or an individual with impairment-related work expenses. The expenses you can claim and income thresholds for eligibility vary by employee category.
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