Your taxable income is the cornerstone of your potential tax due, so you’ll want to take every deduction possible. Looking for possible expense deductions may not seem like the most fun task, but you'll change your mind when you find you’re able to claim something you’ve overlooked. Your wallet will thank you for taking a quick moment to consider these deductions.
If you’re a teacher or have your own business, certain expenses are deductible as adjustments to your gross income. Educators can deduct up to $250 for out-of-pocket expenses for school supplies, books and equipment. Self-employed individuals can take additional deductions for self-employed health insurance premiums, contributions to SEP or SIMPLE pension plan contributions, and half of the self-employment tax you pay for the year. These self-employment deductions are deducted separately from other business expenses you claim on Schedule C. Finally, if you had to move more than 50 miles for a job, you may be able to deduct moving expenses.
If you borrowed money for school, you made a smart choice. Interest you pay on student loans is tax deductible and reduces your taxable income. If you haven’t started paying back your loans because you’re still in school, you might benefit from the tuition and fees deduction. If you qualify for the tuition and fees deduction, you can exclude up to $4,000 from your taxable income. Plus, you can take the deduction even when the money you used to fund your education is borrowed. Loans you take out for school are considered out-of-pocket expenses because you still have to pay the money back, but you can take the deduction before you start repaying your loan.
Miscellaneous Personal Expenses
Several miscellaneous deductions are also available. You can get deductions for personal, after-tax contributions made to health savings accounts and certain after-tax IRA contributions if you meet filing status and adjusted gross income requirements. Contributions made to these plans by your employer are excluded from your eligible expenses. Alimony payments are also included in the miscellaneous category, but only to the extent the payment is deemed alimony. Child support payments are not deductible expenses.
Itemized deductions are a separate category of deductible expenses. You can claim them when their combined total comes to more what your standard deduction is that year. They can include just about every other personal deduction allowed that isn’t included in another category. Popular itemized deductions include mortgage interest, mortgage insurance, property taxes, state income taxes withheld and charitable contributions. You can also deduct unreimbursed employee expenses, certain legal fees, gambling losses and medical expenses. If you’re unsure of your standard deduction amount, look at page 2 of the current 1040 form, and take a peek in the upper left margin. If your itemized deductions are more than the amount shown, then you can itemize.
With a background in taxation and financial consulting, Alia Nikolakopulos has over a decade of experience resolving tax and finance issues. She is an IRS Enrolled Agent and has been a writer for these topics since 2010. Nikolakopulos is pursuing Bachelor of Science in accounting at the Metropolitan State University of Denver.