It’s important to take steps to minimize your tax liabilities. Many taxpayers miss out on valuable tax breaks. Here are some that are often overlooked but that can potentially save you money.
1. Medical expenses
If you itemize deductions, you may be eligible to deduct medical expenses that exceed 7.5 percent of your adjusted gross income (AGI). For example, if your income is $100,000, you may be able to deduct expenses that exceed $7,500. Examples of eligible expenses include:
• Insurance deductibles, co-payments, and other out-of-pocket medical expenses
• Medicare premiums
• Travel expenses for medical procedures, i.e. housing and transportation
• Crutches, walkers, and scooters
• Long-term care insurance premiums
• Contact lenses and related supplies
• Breathing machines or other durable medical equipment
2. Charity-related expenses
Most people are aware that charitable donations are tax-deductible, but fewer realize that certain out-of-pocket expenses related to charity work can also qualify. Examples include:
• Up to 14 cents per mile if you use your car for charity-related purposes
• Postage cost for charity-related mail
• The ingredients used to prepare a meal for a charity event
3. Home office deduction
If you are self-employed and use a space in your home exclusively for business purposes, you may be eligible for a home office deduction. There are two approved methods for calculating your deduction:
• Actual expense — Allows you to calculate the percentage of your home that comprises your home office and add in other costs based on that percentage. For example, if your office takes up 5 percent of your home, you can deduct 5 percent of your mortgage interest, real estate taxes, and utilities. (This method requires keeping meticulous records of your expenses.)
• Simplified — Allows you to claim $5 per square foot, up to 300 square feet (a maximum of $1,500).
It’s important to note that individuals working remotely for companies as W-2 employees aren’t eligible for the home office deduction.
4. Mortgage discount points deduction
If you paid for points to lower your mortgage interest rate, you may be eligible for a tax deduction. The cost of mortgage points can be deducted during the year in which you paid for them as long as the mortgage was used to purchase or build your primary residence.
Points related to a mortgage refinance may also be deductible but typically need to be spread out over the life of the loan.
5. Residential clean energy credit
This allows you to deduct up to 30 percent of the cost of new energy-saving systems that use solar, wind, geothermal, biomass, or fuel cell power to heat water, generate electricity, or heat your home. You can also claim a tax credit of up to $500 for installing energy-efficient doors, insulation, heating and air conditioning systems, and water heaters, and a tax credit of up to $200 for new energy-efficient windows.
Keep in mind these are lifetime credit limits, which means any credits taken in previous years count toward the maximum allowable credit.
6. Student loan interest deduction
For student loan debt, you may be eligible to deduct up to $2,500 of the interest you paid on qualified loans. This deduction is gradually phased out for single filers with a modified adjusted gross income (MAGI) greater than $85,000 and joint filers with a MAGI greater than $170,000.
7. Lifetime learning credit
The lifetime learning credit is available for those pursuing education at any stage — whether undergraduate or graduate studies, continuing education courses, or certificate programs at eligible educational institutions. The credit is worth up to 20 percent of $10,000 in qualified expenses, with a maximum of $2,000 per year. Qualified expenses include tuition and fees, course materials, books, software, and computers necessary for classes.
The credit is available to those with a MAGI of less than $90,000 for single filers or less than $180,000 for married couples filing jointly. There’s a gradual phaseout of the credit for those with a MAGI of $80,000 (individuals) or $160,000 (married filing jointly).
Katie Stephenson, JD, CFP, is a Private Wealth Manager and Partner with Creative Planning. Creative Planning is one of the nation’s largest registered investment advisory firms providing comprehensive wealth management services to ensure all elements of a client’s financial life are working together, including investments, taxes, estate planning, and risk management. For more information or to request a free, no-obligation consultation, visit CreativePlanning.com.
