As you plan for your year-end taxes, the best piece of advice to follow is to work with a professional CPA who can help you minimize the impact of taxes and ensure you take all the deductions you are entitled to. However, it’s also a good idea to be knowledgeable about what items are tax deductible so you can keep records and receipts throughout the year. While some items are common deductions, there are others that many miss. Here are ten purchases that you might not have known were deductible:
1. Charitable Contributions
When you donate to any qualified charity, you can take a tax deduction and lower your tax bill. For the 2020 tax year, you can deduct up to $300 of charitable cash donations without having to itemize. For the 2021 tax year, this increases to $300 per person, meaning a couple filing jointly can deduct $600. So how much can you deduct? In general terms, you can deduct up to 60% of your adjusted gross income via charitable donations. There are limits that apply, so check with your CPA for more information.
2. Student Loan Interest
If you are paying on any student loans with an interest rate of 4% or above, you can deduct up to $2500 of interest paid if you earn less than $80,000 (or less than $165,000 if married and filing jointly.) If you are paying for your child’s student loans, you can also take this deduction as long as they incurred the debt while enrolled at least half time in a program that will lead to a certificate or degree.
3. Compensation for Jury Duty
If you are required to pay the compensation you receive for jury duty back to your employer who is covering your salary during the time you served, you can take a tax deduction on this compensation.
4. Child Care
Have little ones who require daycare, go to camp, or who you hire babysitters for? Under the Child and Dependent Care Credit, you can deduct up to 35% of any qualifying expenses up to $3000 per child ($6000 for two or more children). To receive this deduction, you and your spouse must be working and earn income, you must have sole physical custody of the child(ren), have a filing status of single, qualifying widow or widower, head of household, or married filing jointly, the person providing the care cannot be a child or spouse, and the child must be under 13 or have a mental or emotional disability.
5. Costs for Job Hunting
Many people are looking for new jobs post-pandemic. If you fall into this category, you can deduct job search expenses such as resume prep, phone calls with potential employers, traveling expenses to go to interviews, and moving costs if your new job requires a change of location.
6. Gambling Losses
If you win more than $5000 on a wager and payout is at least 300 times the amount of your bet, you will have to pay 24% of your winnings to the IRS. However, you can deduct your gambling losses from your winnings if you keep a detailed diary of your wins and losses (and make sure you include your winnings as taxable income.)
Confused about what you can and cannot deduct on your taxes? Reach out to one of the experienced CPAs at Hayes and Associates. We’d love to be your guide through the sometimes confusing and stressful world of taxes.