Top 5 overlooked tax deductions
You may already be a pro at deducting charitable donations, mortgage interest and IRA contributions. But are there more tax deductions and credits you could be taking advantage of to lower your tax liability? See if you qualify for any of these commonly missed deductions to avoid paying more taxes than you have to.
State and local taxes
You can take deductions for state and local taxes, but you must choose between deducting either income or sales tax. The deduction is limited to $10,000 (or $5,000 if you use married filing separately status). This limitation applies to state and local income (or sales) taxes and property taxes.
Your child’s student loan interest
If you took out an education loan for a dependent (or even for yourself or your spouse), the interest you pay may be deductible. Your modified adjusted gross income must be less than $165,000 if you’re filing a joint return or $80,000 otherwise. Since this benefit is claimed as an adjustment to your income, you do not need to itemize to claim it.
Home improvements for energy efficiency
There are two separate tax credits related to energy-efficient home improvement costs. (Credits can directly reduce the amount of your taxes due.) For certain types of windows, doors, insulation, water heaters, roofs, heating and air conditioning units added to your existing primary residence, you may be eligible for a credit of up to 10 percent of the purchase price, up to $500. If you install certain qualified alternative energy equipment — such as a solar hot water heater, solar electric equipment, or wind turbines — you may be eligible for a tax credit of up to 30 percent of the cost.
Medical and dental expenses
When filing your 2018 taxes, you can deduct certain unreimbursed medical and dental expenses for yourself, your spouse, and your dependents that equal more than 7.5 percent of your adjusted gross income. For tax year 2019, expenses will need to exceed 10 percent of your adjusted gross income. Typically, you can include things like medicine, medical equipment, hearing aids, eyeglasses and contact lenses, dental fillings, braces, acupuncture and chiropractic treatments, long-term care, and many traditional healthcare services. You must itemize to claim this benefit.
Elderly dependent care
If you have an aging parent or other person living with you, whom you claim as a dependent and who is physically or mentally unable to care for themselves, then you may be able to deduct certain costs of care. Typically, the care must be required so that you or your spouse can work or look for work. It may include home care or out-of-home care (such as adult day care). The credit can be up to 35% of your expenses.
These are just highlights of a few tax benefits you might be missing. For complete details on these and other potential deductions and credits, visit the IRS website and consult your tax advisor. If you would like to discuss your overall financial plan, we're here for you.