Commonly Missed Tax Deductions You'll Want to Keep an Eye On

14

Min Read

Tom Smery

Commonly missed tax deductions are very easy to brush over. You think that you may not be able to get a tax deduction for something, but in truth, you could have saved a lot of money - if only you filed.

You may be a rookie when it comes to taxes, or you may have been filing for years now. Regardless, upon the end of the tax year, you may have realized that you overlooked tax deductions of great importance.

Read on and find out about some taxes you didn't know you could claim but how it'll save you a lot of money.

Note: If you want to capture your overlooked tax deductions and all your other business expenses for the tax year, try Bonsai Tax. Our receipt tracker would scan your bank/credit card statements to discover all the tax write-offs you qualify for. In fact, users typically save $5,600 from their tax bill. Try a 14-day free trial today.

Frequently Overlooked Tax Deductions

There are various state and local tax deductions that many people tend to overlook. Among the most common are the following:

Note: if you want to capture all these frequently overlooked deductions automatically, try Bonsai Tax. Our receipt scanning feature will help you track, organize and record all of your tax deductions for you. The majority of users save $5,600 from their tax bill. Try a 14-day free trial today.

Sales Tax and Income Tax

Many people fail to claim for their sales tax credit, along with their income taxes. If you reside in a state that doesn't charge income tax, adding it up to your personal and household items can increase your tax benefits.

That being said, if the state you live in does ask for income taxes, then you might want to figure out how to claim a couple of associated deductions. When filing your tax form, take a look at any potential big purchases - i.e., a boat or a car.

You might be able to save on income tax credit, as long as you can prove it was work-related. The same applies to sales tax.

Student Loan Interest

Do you still have student loans? Or perhaps you have a child who's a dependent of yours and has a student loan of their own. In that case, you'll likely be glad to know that you can deduct it.

If it's your own student loan interest you are paying, then you should get a 1098-E form from your lender. There, you will see how much you have paid in student loan interest, allowing you to claim your qualifying expenses upon tax return.

That being said, you can only deduct interest worth $2,500 at most every year. Plus, if those taxes are paid through a job that earns you quite a big income, you might have limited deductions or even none at all.

Self Employment Tax

If you are a self-employed person, you will no longer get your W-4 form - ergo, you won't be able to get every payroll deduction either. You won't have your state income taxes withheld anymore. However, you may still be able to snatch some of the tax deductions for your small business.

For instance, you may deduct a part of your self-employment tax from your adjusted gross income. You'll only be able to deduct 50% here - the amount that would normally be paid by your employer.

Charitable Contributions

Charity can fill your heart with content - but it certainly won't do anything to fill your taxes. At least that's what most people believe. You'll be happy to find out that you can get a tax return for these kinds of donations.

You may deduct a check that you give to charity, but you may also deduct donations such as casseroles, fundraiser stamps, or any other items you may have purchased for the charity donations. Local sales taxes are covered here as well, and mileage for the charity may also receive a standard deduction.

Job-Hunting Fees

Job hunting can be quite expensive. You will likely have to pay outplacement agency fees, mailing resumes, and many more. The good part here is that you may get a tax return for these, as long as you apply itemized deduction.

The IRS states that most job search expenses can be tax-deductible, but there's also a catch here. For instance, if it's your first time looking for a job, you still need to pay taxes. You'll only be covered if you've worked at least one job before.

Earned Income Tax Credit

A lot of people on a low income get this tax refund every year, but there are also lots of people who fail to do so. On average, a quarter of the taxpayers don't even know that they are eligible for these tax deductions.

Some even miss out on it, simply because the rules can turn out to be quite complicated. Still, most people receiving low-to-moderate income can get their hands on this tax return - so, it is not only limited to low-income folk.

"Middle class" folk can receive this tax return when their income is brought to a lower point than usual. This can be caused by something such as a lost job, working fewer hours than usual, or taking a pay cut.

The tax refund you get will depend on different factors, such as your income or your family situation. Married couples filing jointly, for instance, will receive more tax deductions, but with the costs split.

Home Office Tax

The home office tax deduction is a very common tax that people claim - but it's just as commonly missed. Many self-employed individuals - for instance, freelancers - may not know that they can deduct the room they are doing most of their work in.

Sure, the rest of the house may be for personal and household items - but that particular room can have everything deducted, from bills to mortgage interest.

Pet Moving Tax

Good news for pet owners: you can get some of their taxes deducted as well! Granted, if you are a small business owner and your dog, Fido comes with you for no good reason, you may not get the tax deduction. Fido needs to be there for a good reason.

However, if Fido is a service dog or if you are an armed forces member changing your station, then you might be able to deduct his shipping costs.

Meal Expenses

Many people do not realize that they can deduct half their meal expenses, even if they are not dining in a restaurant. Most people are aware of the fact that they can have their official meals deducted - for example, dining at a restaurant with an official business partner.

However, you can also deduct half your meal expenses, even if your meal comes out of a grocery store. There's a catch for that, indeed, as you need to be traveling for business - but as long as you are at least 100 miles away from home, even that burger you got at the airport is tax-deductible.

Refinanced Mortgage Points

When it comes to property taxes, very few people know that refinancing mortgage points is also something that you may receive.

When you buy your home, you can deduct mortgage points in one sitting - an interest-decided percentage that applies to the whole loan. However, when you refinance a mortgage, you can deduct the points throughout the rest of the mortgage life.

In this case, you should be able to deduct around 1/30th of your mortgage points. For instance, if you have a 30-year mortgage, you'll have a $33 deduction for every $1,000 batch point that is paid. It might not seem like very much, but why not take advantage of it? To get the most out of this, you might want to discuss with an advisor on property taxes.

Wig Costs

We know what you're thinking: how are wigs tax-deductible? But they can be, as long as you can prove it's not just a whim of yours.

In most circumstances, a wig can have its tax burden removed if you can prove it was a medical need. For example, a certain medical condition may have caused you to lose your hair, and the doctor recommended that you wear a wig.

Training Costs and College Tuition

You may be still going to college classes to obtain a degree, or you may be attending a training course to improve your skills at the job. Regardless, you should be able to get a tax return for that as well.

Here, you may opt for the lifetime learning credit. In this case, you may get a tax return of up to $2,000 - a tax credit that is only given if your income limits don't exceed certain thresholds. To get ahold of this itemized deduction, it is necessary to fill in form 8863 and give it to the IRS.

Energy Saving Home Modifications

If you have a home office and you make home improvements for energy saving, then you should be able to claim a tax that very few actually think about claiming: the residential energy-efficient property taxes.

For the 2020-2021 tax year, you should be able to get a 30% tax credit if you install a solar water heater or a solar electric system. Not only will you be doing your tax bill a favor by claiming this tax, but you'll also do your part in helping the environment.

Pregnancy Tests

Very few women know this, but pregnancy tests may also be deducted as medical expenses. It might seem like a small expense that you may not want to bother with at first, but if you are going for a higher-priced test, then this might reduce your tax liability.

Through medical miscellaneous itemized deductions, you may also be able to claim costs after the baby comes. For instance, supplies such as a breast pump may be written off as medical expenses.

Weight Loss Expenses

While you can't deduct the costs for every fad diet you try simply because you want to improve your looks, you can deduct them as long as they were medically necessary.

For example, let's say that certain diseases put your health at risk. In these circumstances, your doctor may recommend that you lose weight or follow a certain diet. As long as it is a doctor's recommendation, you can write off your weight loss expenses from your income taxes.

Dependent Care Credit and Child Care

If you have a qualifying child for whose care you paid, or if you had other dependents that you had to care for while you and your significant other went to work, then you may be eligible for dependent care credit.

In most cases, child tax credit is better to have than the standard deduction. Deductions will reduce your taxable income, taking out some tax preparation fees. However, credits go straight through your tax liability, significantly reducing your tax bill.  

Smoking Cessation

How many of you knew that you could deduct your smoking cessation costs? The truth is that not many people know they could get a tax break from this, which is why it goes unclaimed most of the time.

If you are trying to quit smoking and you enter a smoking cessation program, then you may deduct these costs as medical expenses. Aside from the program itself, it also applies to prescription drugs that you'll need for your nicotine withdrawal.

Theft or Casualty Losses

Theft or any type of casualty can be quite costly. In the past, taxpayers were able to deduct incidents such as fires, vandalism, car accidents, and any other type of costly casualty. Due to some TCJA modifications, a lot of those deductions went away, but some are still applicable.  

That being said, deductions caused by theft or disasters that have been federally declared are still covered. The only condition is that they must not be covered by insurance and the value for each casualty needs to be at least $100.

Timeshare Property Taxes

According to Schedule A, Line 5B of the tax law, you may deduct the personal property taxes if you sold a home on Timeshare - a deduction that few people claim. This can include things such as your annual maintenance fee, which is often issued separately.

You should check whether the buyer already reimbursed your taxes first or not. If they did, then you should have gotten a 1099-S. In Box 6, you should be able to see the amount that has been reimbursed.

Breast Surgery

Breast surgery can also be written off from your taxable income, but there are some extra catches and conditions here as well. For example, if you are going for cosmetic surgery simply because you wanted to go from a B-cup to a C-cup, you won't get any deductions. Unnecessary surgery is not eligible.

Things change if the surgery is necessary. For instance, according to the Internal Revenue Services (IRS), cosmetic surgery can be written off if the doctor recommends it. For example, if you just went through cancer treatment and you need breast reconstruction, then you may get tax breaks for that.  

Charitable Travel Costs

Maybe you are not traveling for work, but you are not necessarily traveling for pleasure either. It's a charitable trip. What you might not know is that you can deduct charitable trips from your modified adjusted gross income.

Still, you have to be careful here as you are filing for local income taxes. In order to get your money back, you need to make it clear that there aren't any significant elements of vacation, recreation or personal pleasure while you are on the trip.

This doesn't mean that you can't have some fun while you are at it. You can still make the most of your time there. But your primary purpose should be to put your efforts into the charitable event. For you to get your tax return, you have to be on duty for a significant amount of time.

Note: The best way to track all your expenses for trips is you use our travel expense organizer. We'll organize all your bank/credit card receipts to capture all your travel expenses as well as other tax deductions. Try a 14-day free trial and see how much money you save.

Medicare B and D

Medicare B and D parts are also premiums that are regarded as a deductible medical expenses. Moreover, if you did not receive any Social Security benefits, you may deduct the premiums that you paid yourself for the Part A Medicare coverage. The only condition is that the total medical expenses have to be at least 7.5% of the total AGI.

Military Reserve Travel Costs

As a member of the National Guard or the Military Reserve, you may partially deduct travel expenses for when you are attending drills or meetings. For these to be covered, they must be at least 100 miles away from your home - meaning, you will likely need lodging.

The chances are that you won't even need to itemize. Think of them as deductible business expenses, in a way. This allows you to write off your full lodging expenses and half of your meal costs.  

Don't miss out on future write-offs with our tax deduction cheat sheet. Use it to discover more tax write-offs you can claim so you do not miss any during tax time.

What Deductions Can I Claim Without Receipts?

In some circumstances, you may not be able to prove a certain payment through a receipt for taxes. You may have lost it, or you may have simply not received the receipt in the first place.

With that in mind, there are still certain tax breaks that you may be able to get even without the receipt. You just need to prove that you paid for that for work purposes. Here is what you can deduct without a receipt:

Union Fees or Membership Fees

Very often, these fees will appear on an income statement or a PAYG summary. Regardless of what other summary you get from your tax agent or employer, you will not need a receipt to get your income tax deductions.

Fuel and Petrol

Fuel and petrol can also be deducted without a receipt. The easiest way to do that is to use the logbook method, where you calculate your miles and determine a fuel rate. Going without the logbook is fine, but you still need to show how you calculated your fuel use.

Computer Items

Computer items can get a tax break even without a receipt. You just need to get a credit card statement and make a big note on how that money was spent. Ideally, you should take a photo of the packaging or the item upon receiving it - but if you do that, you might as well snap a picture of the receipt.

Stationery

Once more, if you have a credit card statement, you might also add stationery to your itemized deductions. Similar to the computer items, you should take pictures of them as well.

The Bottom Line

Sometimes, taxes can be confusing, and it may be troublesome to keep up with all the qualifications. Still, paying a bit of attention can save you a lot of money in the long run. To make it easier for you, hang on to your receipts and consider having a chat with your tax advisor.

Tom Smery
Tom Smery is a certified CPA for over a decade. In his free time, he writes articles to pass on his expert knowledge on taxes and accounting. Thomas has a wide range of deep knowledge on 1099 taxes, and finance topics. You can find him fishing when he is not preparing taxes for his clients or writing about accounting.

Join 150,000+ freelancers using Bonsai's free contracts & invoices.

Thank you! Your submission has been received!
Oops! Something went wrong while submitting the form.

Discover the integrated all-in-one software suite Bonsai.

Oops! Something went wrong while submitting the form.