10 Last-Minute Deductions You Don’t Want To Miss
“What can I claim on my taxes?” is a question that tax preparers are used to hearing every tax season, because more tax deductions mean a lower tax bill. When tax time rolls around, you don’t want to miss any of the tax write-offs that you’re eligible for — otherwise, you’re just leaving free money on the table.
Here’s a list of tax deductions you can’t afford to overlook.
Last updated: May 5, 2021
1. Traditional IRA Contributions
Traditional IRA contributions are unique in that they don’t have to be made before the end of the tax year to be deducted on your tax return. With traditional IRA contributions, you can make contributions up to your tax filing deadline and have them count for the prior tax year. For the 2020 tax year, you can contribute up to $6,000, and if you’re 50 or older, you can contribute $7,000. You’ll stop contributing in the year you turn 70 ½. Just make sure you make the contribution for the tax year for which you’re taking the deduction. If you make a 2021 contribution, you won’t be able to deduct it until you file taxes the following year.
Read More: Here’s How To Use Your IRA as a Last-Minute Tax Deduction
2. Educator Expenses
If you work as a teacher, chances are you spend your own money on supplies for your classroom. This entitles you to special job-related deductions for at least part of the amount you spend on professional education, books, software and other supplies. The deduction is up to $250 per teacher, so married teachers can each deduct up to $500 if they’re married filing jointly. Eligible educators include elementary, secondary and high-school teachers, counselors, administrators and aides.
3. Mortgage Points
Most people know that mortgage interest is deductible, but sometimes taxpayers overlook the ability to deduct related expenses like mortgage points. Mortgage points are costs you pay upfront, typically as a form of prepaid interest. If your loan is secured by your main home, the loan is used to buy or build your main home, and certain other conditions are met, you can deduct all the points in the year you pay them. When the loan isn’t used to buy or build your main home, as would be the case with a cash-out refinance or home-equity loan, you must deduct the points over the life of the loan.
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4. CD Early Withdrawal Penalties
Cashing in a certificate of deposit early usually results in you having to pay an early withdrawal penalty. Though it won’t reimburse you in full, you can use that penalty as a deduction on your taxes. You can claim the deduction even if you don’t itemize, and even if the penalty exceeds your interest income on the CD. For example, if you earned $50 in interest but paid $150 in an early withdrawal penalty, you would report $50 of income but receive a $150 deduction.
5. Student Loan Interest
Taxpayers who owe some portion of America’s $1.7 trillion of student loan debt can use the interest they pay to reduce income taxes. The deduction is capped at a maximum of $2,500, though your maximum deduction might be lower if your income is too high. You can’t claim the deduction if you’re married but file separately from your spouse or you and your spouse can be claimed as dependents on someone else’s return.
6. Hobby Expenses
Taxpayers who earn income from their hobbies can reduce their taxable income by deducting hobby-related expenses. The main purpose of the hobby must be fun, cannot generate profits, and you can only deduct expenses the IRS considers “ordinary and necessary.” The deduction is limited to the amount of income you earned from the hobby.
7. State and Local Sales Taxes
Itemizing your deductions lets you write off state and local income taxes you paid during the year. Residents of states with low or no income tax can claim the amount paid in state and local sales taxes instead. Use the IRS Sales Tax Deduction Calculator if you didn’t save all your receipts.
Check Out: The Best and Worst States for Taxes — Ranked
8. Donations of Goods
Most people remember writing checks to charity, but you can also deduct the value of goods you donate, such as food, books or other supplies. You can also deduct 14 cents per mile you drive for charitable purposes. But you still can’t write off the value of the time you spend doing charitable work. And to claim any deductions to charity, you must itemize.
Find Out: How to Know If You Can Really Write Off That Donation
9. Tax Preparation Expenses
You can deduct tax preparation expenses. These expenses can include the amount you pay an accountant or the cost of tax-preparation software, plus the cost to file your tax return electronically. You include the costs in the year that you pay the preparation fees. For example, if you paid prep fees in 2020 to prepare your 2019 tax return, you report those expenses on your 2020 tax return. You’re limited to deducting the portion of your expenses that exceed 2% of your adjusted gross income.
10. Employee Business Expenses
Employees who must pay expenses for their jobs can sometimes use those expenses to reduce their taxes. Examples of employee expenses include uniforms you must pay for out of pocket, professional development or memberships in professional organizations. But not only do you have to itemize, you must also meet the 2% threshold — you can only deduct the expenses that exceed 2% of your adjusted gross income.
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This article originally appeared on GOBankingRates.com: 10 Last-Minute Deductions You Don’t Want To Miss
