Although itemized tax deductions can considerably reduce the amount you owe at tax time, many people opt for the standard deduction. That's because some people erroneously think itemized deductions only help high-income tax payers. In truth, some common ones can cover expenses middle-class people encounter on a regular basis.
Most homeowners know the interest paid on mortgages is deductible. Most don't know you can also deduct interest from home equity loans and lines of credit. The interest on a mortgage for a second home, even if it’s used for rental purposes, is also deductible. You can also write off your mortgage origination fees and any points you paid.
Student Loan Interest
If your income is below $150,000 for married couples filing jointly, you can deduct the interest you paid on federal and private student loans. It only counts if the funds were used solely for education expenses, you were at least a part-time student, and you're pursuing a degree at an accredited institution. The loan must have originated from a bank or the federal government.
Vehicle Sales Tax
You can deduct the sales tax you pay on a new vehicle if your combined income is less than $260,000. If you buy a hybrid vehicle, you can utilize this deduction in addition to the tax credits you get for buying an eco-friendly car.
State and Local Taxes
Income tax paid to state governments is deductible. You can also deduct any state sales tax you paid on goods and services. The IRS won't let you deduct both, and, for most people, the income tax deduction is worth more. You can also deduct property taxes paid to local governments on your principal residence and any investment or rental properties you own.
You can write off up to 14 cents for each mile you travel for charity-related activities, as well as your out-of-pocket expenses for making meals or other goods for a charity organization. Anything you spend on an underprivileged child you work with through a charity is also deductible. You don't get a break for giving to individuals, such as friends, family members or panhandlers.
If you had medical expenses that exceeded 7.5 percent of your adjusted gross income for the year, you can use them for deductions. There are some limits though. Necessary medical costs such as health insurance premiums, out-of-pocket expenses for prescriptions and doctor's visits are valid claims; cosmetic procedures such as liposuction and braces are not. You also can't ask for tax breaks on any reimbursements you got, or for any employer-contributed funds to your health savings account.
You can deduct work-related expenses that exceed 2 percent of your income as long as your employer did not reimburse you. Union dues, uniforms and required licensing are examples of qualifying expenses.
- Internal Revenue Service: Publication 502 - Medical and Dental Expenses
- Internal Revenue Service: Publication 526 - Charitable Contributions
- Internal Revenue Service: Topic 503 - Deductible Taxes
- Internal Revenue Service: Topic 456 Student Loan Interest Deduction
- Internal Revenue Service: Publication 936 - Home Mortgage Interest Deduction
- Internal Revenue Service: Topic 514 - Employee Business Expenses
Lauren Treadwell studied finance at Western Governors University and is an associate of the National Association of Personal Financial Advisors. Treadwell provides content to a number of prominent organizations, including Wise Bread, FindLaw and Discover Financial. As a high school student, she offered financial literacy lessons to fellow students.