Understanding tax breaks can really help you make the most of your finances. Many people miss out on valuable deductions and credits that could save them a lot of money. Check out these 18 lesser-known tax breaks that might apply to you and make the most of your tax return.
Health Savings Account (HSA) Contributions
According to HSA Central, “All interest earned in your HSA is 100 percent tax-deferred, meaning the funds grow without being subject to taxes unless they are used for non-eligible medical expenses.” If you use the money for qualified medical expenses, the withdrawals are tax-free, too. This triple tax advantage helps cut down your taxable income and provides a safety net for healthcare costs.
Educator Expenses Deduction
If you’re a teacher, you can get up to $250 back for classroom supplies you buy yourself. You don’t even need to itemize to get this deduction. It’s a small but meaningful way to recognize the effort and money educators put into their students’ education.
Student Loan Interest Deduction
Any interest that has been paid on student loans can be deducted up to $2,500 annually. This deduction is available regardless of whether you itemize, helping lower your taxable income and ease some of the financial stress from student loans.
Lifetime Learning Credit
The Lifetime Learning Credit gives you up to $2,000 a year for eligible education expenses. Whether you’re just starting college or taking advanced courses, it’s much-needed help to cover the costs of tuition, fees, and course materials.
American Opportunity Tax Credit (AOTC)
Available for the first four years of higher education, the AOTC provides up to $2,500 per eligible student for tuition, fees, and course materials. Forty percent of the credit is refundable, meaning you can receive up to $1,000 back even if you owe no taxes.
Retirement Savings Contributions Credit
This credit, also known as Saver’s Credit, rewards low- and moderate-income individuals for contributing to retirement accounts. Depending on your income and filing status, you can claim up to 50% of your contributions, with a maximum credit of $1,000 for individuals and $2,000 for couples.
Child and Dependent Care Credit
If you’re a working parent, the Child and Dependent Care Credit can help. You can claim up to 35% of your childcare or dependent care expenses, with a maximum of $3,000 for one dependent or $6,000 for two or more.
Earned Income Tax Credit (EITC)
The EITC is designed to benefit low- to moderate-income working individuals and families. The amount of the credit depends on your income, filing status, and number of dependents. It’s a refundable credit, potentially leading to a significant tax refund.
Adoption Credit
Adoptive parents can claim a credit for qualifying adoption expenses, including adoption fees, court costs, and attorney fees. For 2023, the maximum credit is $15,950 per child. This non-refundable credit helps ease the financial burden of the adoption process.
Residential Energy Credits
Homeowners investing in energy-efficient improvements may qualify for residential energy credits. These credits can cover solar panels, wind turbines, geothermal heat pumps, and more. By making eco-friendly upgrades, you not only save on energy bills but also reduce your tax liability.
State and Local Tax (SALT) Deduction
The SALT deduction allows taxpayers to deduct up to $10,000 of state and local taxes paid, including state income, sales, and property taxes. Although capped, this deduction can still provide meaningful relief for taxpayers in high-tax states.
Charitable Contributions Deduction
Charitable contributions to qualified organizations are tax-deductible. This includes cash donations, as well as non-cash items such as clothing and household goods. To claim this deduction, ensure you have proper documentation and itemize your deductions on your tax return.
Home Office Deduction
Self-employed individuals can deduct expenses related to their home office, including a portion of mortgage interest, utilities, and repairs. The space must be used regularly and exclusively for business purposes, providing a valuable tax break for entrepreneurs.
Mortgage Interest Deduction
If you own a home, you can deduct mortgage interest on loans up to $750,000. This applies to both your primary and secondary homes, helping to lower your taxable income and making homeownership a bit more affordable.
Medical Expense Deduction
Medical expenses exceeding 7.5% of your adjusted gross income (AGI) are deductible. This includes out-of-pocket expenses such as doctor visits, prescriptions, and medical devices. Keeping detailed records of your medical expenses can lead to significant tax savings.
Business Travel Expenses
Self-employed individuals can deduct business travel expenses, including airfare, lodging, and meals. This deduction helps offset the costs of conducting business away from home, making it more affordable to pursue new opportunities and grow your business.
Job Search Expenses
Job search expenses are deductible if you’re looking for a job in your current occupation. Eligible expenses include resume preparation, travel, and placement agency fees. Although not available to those seeking their first job, this deduction can ease the financial burden of job hunting.
Tuition and Fees Deduction
You can deduct up to $4,000 for college tuition and mandatory fees from your taxes, helping make education more affordable. This deduction can be used even if you don’t itemize, and it lowers your taxable income. However, it doesn’t apply to room, board, or other personal expenses.
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