You might be overpaying your tax bill and not even realize it. There are many tax deductions within the United States tax code that you can take advantage of to reduce your taxable income, resulting in a lower tax burden.
As you get ready for tax season, take a look at these often overlooked deductions to see what may apply to you and how you can save more money in the process.
Early withdrawal penalties
There may be instances where you need to take distributions from a CD or other savings account earlier than expected. If so, you’ll likely have paid an early withdrawal penalty. But did you know that this penalty is actually tax deductible? The full amount of these penalties can be added to the "early withdrawal penalty” portion of your taxes as a deduction, helping alleviate some of this loss.
For those that are self-employed, medicare premiums can be tax-deductible. This deduction can be taken if you are paying premiums for the following plans:
- Medicare Part B
- Medicare Part D
- Medicare Advantage
The medicare deduction applies if you are receiving coverage outside of your employer plan or your spouse’s healthcare plan, and can be used whether you choose to itemize deductions or not.
Have you given charity this year? If so, you may be able to deduct the amount of your charitable donation from your taxes. Gifts to registered nonprofit organizations are usually tax-deductible. The IRS allows this to incentivize more charitable giving from individuals. Donations can be made in cash or via electronic payments, but you can also deduct items like clothing and home goods that are given to a registered nonprofit. For non-cash donations, make sure you receive a receipt of your donation and its value so you can deduct the appropriate amount this year.
Energy-efficient home improvements
Did you add solar panels or an electric heat pump to your home? Energy-efficient improvements such as these qualify for the Energy Efficient Home Improvement Credit, which can save you up to $2,000 for the cost of certain improvements. Keep in mind, this credit is nonrefundable, and you can’t receive more money on your credit than you owe in taxes for the year.
Casualty, disaster, and theft losses
If you’ve experienced losses in personal property as a result of theft, fire, or a natural disaster, you may be able to deduct some amount of that loss from your tax bill. You will have to use the correct value of your property, which may require calculating its fair value. This deduction can be used for the year of the loss, and you’ll likely have to provide proof to ensure you receive the deduction. Note that any loss from a manmade disaster or a loss that’s already covered by your insurance doesn’t apply.
Taxes are a necessary part of life. But that doesn’t mean you should overpay when you can instead use deductions to help reduce your tax liability. These tax deductions, along with many others, can help you keep more money in your pocket year after year.