10 Tax Deductions You Didn’t Know Existed
There are a number of tax deductions that taxpayers forget about because they are so uncommon. This is especially true for those deductions that are hidden within the itemized section since many taxpayers opt for standard deductions on their returns.
But knowing about these deductions and claiming them could significantly reduce your taxable income. So before you start preparing your 2020 tax return, see if you qualify for one of the following tax deductions.
Tax Deduction for Charity Donations
If you’re a constant giver, you shouldn’t forget to take advantage of the tax deductions available to those who give to charity. Typically, you qualify if you give donations of cash and property to qualified non-profit organizations, up to 60% of your adjusted gross income. However, in order for the donations to be deductible, you must keep records of your contributions. This is especially true of any gifts that add up to more than $250.
Even if you’re taking the standard deduction and not itemizing, you are allowed to deduct up to $300 in charitable giving.
Home Mortgage Interest Tax Deduction
This deduction is available to homeowners who are 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 the opportunity to reduce your taxable income based on how much you’ve paid out in interest on your home loan.
Check These Out: 8 New or Improved Tax Credits and Breaks for Your 2020 Return
No More Maximum Age for IRA Contributions
The IRS has repealed the maximum age for making contributions to individual retirement accounts (IRAs), so taxpayers over 70 1/2 who are still working or running a business can choose to contribute.
Qualified Performing Artists (QPA) Deduction
Even though this deduction is not itemized, it’s one many people don’t notice because they have no idea about it.
Basically, it allows people in certain professions to deduct their job-related expenses. These professions include those in the performing arts like music, dancing and acting.
Previously, taxpayers could choose to take this as an itemized deduction, but that option was removed when the Tax Cuts and Jobs Act went into effect in 2018.
No, this deduction isn’t for the amount of sodium you have in your diet. SALT stands for “state and local taxes.” It’s now limited to $10,000, but it still allows you to deduce high property taxes and state income taxes.
Unreimbursed Employee Expenses Deduction
If you contributed money to your employer and that contribution was unreimbursed then you may be able to deducted the expenses, although this deduction has become more limited over time. This is now limited to fee-basis state or local government employees, qualified performing artists, Armed Forces reservists or employees with impairment-related work expenses.
Safe Deposit Box Rent Deduction
If you pay rent on a safe deposit box and keep taxable-income producing stocks, bonds or other investment-related papers and documents in it, you may be able to take a deduction.
However, you cannot deduct your rent if you use the box for jewelry or other personal items.
Deduction for Gambling Losses Up to the Amount of Gambling Winnings
Since you must report the full amount of your gambling winners for the year, you can also deduct your gambling losses for the year. However, you cannot deduct losses that exceed the amount of your winnings. In order to take this deduction, you must keep an accurate diary of your winnings and losses. You may deduct losses when gambling on slot machines, table games, bingo, racing, lottery and more.
Expenses for Elementary and Secondary School Teachers
Elementary and secondary school teachers can deduct up to $250 for eligible expenses such as books, supplies and computer equipment for classrooms.
Deduction for Health Saving Account
If you have a Health Savings Account (HSA), this is a crucial benefit for you. Individuals are allowed to contribute $3,500 tax-free to his or her HSA, while families can contribute $7,100. This effectively allows you to pay for medical expenses, tax free.
Note that you can also deduct medical expenses if they are 10% of your adjusted gross income.
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George Malone contributed to the reporting for this article.
Last updated: Feb. 15, 2021