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7 February, 2022

10 Things You Didn’t Know Were Tax Deductions

Now that we are in tax season, you want to make sure you do everything in your power to keep as much of your own money as possible.  One way to accomplish this endeavor is by searching for any and all tax deductions.

You may be surprised to learn how many ways you can deduct from your total tax bill. In this blog article, we will unveil 10 things you might not have realized are tax deductions that could save you a lot of your hard-earned money for the 2021 tax year.

10 Most Overlooked Tax Deductions 

1)     Health Insurance Premiums

There is no doubt that paying your health insurance premium takes a big chunk out of your monthly income. But did you know the IRS – believe it or not – wants to give some of that money back to you?  One stipulation is that the deductible medical expenses must surpass 7.5 percent of your adjusted gross income, or AGI, to be claimed as an itemized deduction for 2021.

If you are self-employed and handle your own health insurance coverage, you may be able to deduct 100 percent of your health insurance premium cost.  This cost is removed from your adjusted gross income instead of as an itemized deduction.

2)     Sales Taxes

You have the choice of deducting sales taxes or state income taxes off your federal income tax.  If your state does not have income tax, you will find this deduction is a great way to potentially save a great deal of money. 

If you happen to have paid state taxes, the break on your sales tax could be more of a money saver if you made large purchases such as expensive jewelry or a boat, for example. It is necessary to itemize in order to take the deduction instead of taking the standard deduction.

Your tax accountant can assist you in determining whether itemizing or taking the standard deduction is the best course of action, and if you itemize, deciding whether you ought to take the sales tax deduction or deduct state income taxes. 

3)     Charitable Gifts

You probably already know that you can deduct money or goods given to a charitable organization. But are you making the most of this benefit?  For example, out-of-pocket expenses for charitable work also qualifies as a tax deduction. So, if you bake cookies for a local organization fundraiser, you are able to deduct the cost of the ingredients that were required to bake them. Be sure to save your receipts or itemize the costs in the event you are audited by the IRS.

4)     Lifetime Learning

According to the federal tax code, you have quite a few options for deductions when it comes to college. Even if you have already graduated, you still might be able to take tax deductions for furthering your education.

For example, The Lifetime Learning credit will provide up to $2,000 each year, taking off

20 percent of the first $ 10,000 of education expenses after high school. However, this deduction phases out at higher income levels. The good news is how old you are when you advance your education is not relevant for this tax deduction, as far as the IRS is concerned.

5)     Student Loan Interest Paid by You or Someone Else

Previously, if parents or someone else paid back a student loan incurred by a student, no one received a deduction on their taxes. In order to get a tax deduction, the law stipulated that you had to be both liable for the student loan debt and pay it yourself. However, now there is an exception. You could be eligible to take a deduction but even if someone else pays back the loan, the IRS still considers it as though they gave you the money, and you then paid the debt.

So, a student who is not claimed as a dependent is eligible to deduct as much as $2,500 of student loan interest paid by you or by someone else. 

6)     Moving Expenses

Moving might be one of the most stressful things in life, but it could offer you a tax deduction. It is true that many taxpayers no longer had the option to deduct moving expenses as of 2018, however, one segment of people who can claim their moving expenses is military personnel.

If you are an active duty member of the military who is moving, you are able to deduct your relocation expenses, if you do not receive reimbursement from the federal government for your move. You do not have to pay tax on qualified moving expenses if your move is permanent – and your relocation was ordered by the military.

Here is what you can deduct from your taxes if you serve in the military and you are making a permanent move: 

  • Claim travel and lodging expenses for you and your family

  • Claim moving household goods

  • Claim the costs for shipping your cars and your pets

7)     Paying the Babysitter

There is a chance you could deduct the cost of hiring a babysitter if you pay her to supervise your children while you are looking for work, while you’re working, or if you are a full-time student. What is required by the IRS is to report the name and tax ID number of the person or organization offering the child care, in addition to the address of where the care was provided.

There are certain states that want you to report the telephone number of the care provider. Although this option is not actually a tax deduction, it could be even better for you because you do not have to itemize your deductions to receive the credit. What this means is that it might reduce your tax, as well as taking the standard deduction rather than itemizing.

8)     Unusual Business Expenses

If something is being leveraged to benefit your business and you are able to document the reasons for it, you typically can deduct it off your business income.  If your business requires the use of printers, then you could deduct printer costs because it is a necessary expense for your company. If your business needs signage to promote your antique store, then you could deduct the signage expense from your business income. 

9)     Tax Savings for Teacher

It is a common scenario for teachers to frequently pay out of their own pocket for buying items required for the classroom. The IRS understands how expensive this cost can be for teachers. For that reason the IRS permits eligible K-12 educators to deduct as much as $250.00 for classroom materials. The class materials are subtracted from your income, which means you can take advantage of it even if you do not itemize.

10)  Earned Income Tax Credit (EITC)

There are scores of people who rely on the Earned Income Tax Credit to supplement their income. You might be surprised to know that as many as 25 percent of people who qualify for the Earned Income Tax Credit neglect to claim it, according to the IRS. Complicated rules can be a barrier for the average person to pursue this tax credit.

The EITC is a refundable tax credit, and not a deduction, with maximum amounts for various filing statuses ranging from $1,502 to $6,728 for 2021. The credit is intended to supplement earnings for low-to-moderate income workers. However, the credit does not only apply to lower income people. Millions of individuals and families who did classify as “middle class” – including a significant number of white -collar workers – are now considered “low income” because they: 

  • Took a pay reduction

  • Lost their job

  • Worked fewer hours during the year

The exact refund amount you will receive is based on your income, marital status, and the size of your family.  You must file a tax return – even if you owe no taxes – in order to obtain a refund from the EITC. Also, if you qualified to claim the credit in the past, but you didn’t, you can file any time during the year to claim an EITC refund for up to three previous tax years.

Look to Drilldown Solution for Expert Tax Planning Services for Your Small Business 

Drilldown Solution delivers a seamless tax planning and compliance process.  As is the case with all of our programs, tax planning solutions are custom-made based on an individual’s needs, wants, and the goals of your business.  You can expect your business to greatly benefit from our dedicated team of tax experts, ensuring your tax planning needs are met quickly and efficiently.  

At the core of our tax planning services is the promise to you that we will devise a tax strategy aimed at reducing your liabilities and optimizing profits for your business. 

Our Provo, Utah Tax Planning Services are just what your small business needs. 

Drilldown Solution Can Help Your Small Business Accounting Needs 

Our accounting services are designed to reduce your administrative and bookkeeping burdens and provide you with valuable financial benchmarks for your business. This service results in keeping you updated and informed. 

Our seasoned, highly skilled full-service accounting team at Drilldown Solution will remove your financial pain points with bookkeeping to make managing your money easier. DrillDown Solution has the important tools you require to track expenses, oversee cash flow, and discover financial trends so you can effectively plan for the future of your business. 

We have the expert team to help any small business thrive, even under the current COVID-19 pandemic circumstances. We accomplish this result with a three-part system comprised of patient-experience excellence, financial focused operations, and accountability. 

Our goal at Drilldown Solution is to put your small business in the best financial position possible, utilizing proactive processes and personal care!

 

Adam

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