What Are the Top 5 Things You Didn’t Know You Could Deduct on Your Taxes?

Taxes can be complex, and while most people know they can deduct mortgage interest, student loan interest, or business expenses, there are lesser-known deductions that could save you money. Every dollar you deduct legally means less taxable income and a lower tax bill.

Many taxpayers miss out on valuable deductions simply because they don’t know they exist. Here are five surprising things you might not know you can deduct on your taxes:

1. Home Office Deduction (Even If You’re a W-2 Employee)

Traditionally, the home office deduction has been known as a tax break for self-employed individuals and small business owners. However, with the rise of remote work, some W-2 employees may also qualify for this deduction.

If you work remotely and your employer does not reimburse your expenses, you may be able to deduct a portion of your home expenses, such as rent, utilities, and internet costs. The key requirements for this deduction include:

• A dedicated workspace that is used regularly and exclusively for work.
• A direct connection between your job and your home office.

How to calculate it: The IRS allows two methods:

• The simplified method, which lets you deduct $5 per square foot of your office space, up to 300 square feet ($1,500 max).
• The actual expense method, where you calculate the percentage of your home used for work and deduct that percentage of rent, utilities, and other home expenses.

Even if you are an employee and cannot take this deduction directly, you may be able to ask your employer for reimbursement, which is a tax-free benefit for you.

2. State Sales Tax Deduction

Did you know that you can deduct sales tax instead of state income tax? If you live in a state with no income tax, like Texas or Florida, or if your sales tax payments exceed your state income tax, this deduction can be valuable.

The IRS allows you to:

• Deduct either state and local income taxes or state and local sales taxes (but not both).
• Use IRS tables based on your income level and location to estimate your deduction or track your actual sales tax receipts.

This is especially beneficial if you made large purchases during the year, such as:

• A new car
• Home renovations
• Luxury items

If you itemize your deductions instead of taking the standard deduction, this tax break can help you significantly lower your taxable income.

3. Out-of-Pocket Charitable Contributions

Most people know they can deduct donations to qualified charities, but many don’t realize that out-of-pocket expenses related to charitable work can also be deducted.

For example, if you volunteer for a nonprofit organization, you may be able to deduct:

• The cost of gas and mileage when driving to volunteer events (14 cents per mile in 2023).
• Supplies you purchase for the organization.
• Travel expenses (if you travel solely for volunteer purposes and do not receive reimbursement).

To qualify, make sure you keep detailed receipts and records of your contributions. While your time itself is not deductible, any expenses you incur while volunteering can add up to significant tax savings.

4. Medical Expenses, Including Travel and Therapy Dogs

Medical deductions can be tricky since they must exceed 7.5% of your adjusted gross income (AGI) before they count. However, if you have high medical costs, this deduction can be extremely valuable.

Most people are aware that you can deduct doctor’s visits, prescriptions, and surgeries, but here are some surprising medical deductions:

• Mileage for medical visits: If you drive to a doctor’s office, pharmacy, or therapy session, you can deduct 22 cents per mile in 2023.
• Travel expenses for medical treatment: If you need to travel for a medical procedure, you can deduct lodging (up to $50 per night) and certain transportation costs.
• Therapy animals: If you have a trained service animal for a medical condition, its food, training, and veterinary costs may be deductible.

If your medical expenses are high, keeping track of all related costs could help you meet the threshold and maximize your deduction.

5. Job-Hunting Expenses (If You’re Looking for a New Job)

If you’re searching for a new job in your current industry, you might be able to deduct certain job-related expenses. While the tax reform in 2018 eliminated this deduction for many employees, it may still be available in some cases, especially if you are self-employed.

Expenses that may be deductible include:

• Resume preparation and printing costs.
• Job placement agency fees.
• Travel expenses (if you travel for interviews).
• Networking event fees related to job searching.

This deduction does not apply if you are switching to a different career field or if you are looking for your first-ever job.

How We Can Help

Navigating tax deductions can be overwhelming, and many taxpayers leave money on the table simply because they don’t know what they qualify for. At SD Bookkeeping by Paul Anderson, we specialize in maximizing your tax savings and ensuring you take advantage of every deduction available to you.

Whether you’re a business owner, a remote worker, or an individual looking for ways to lower your tax bill, we can help you identify the best strategies for your situation. Schedule a consultation with us today, and let’s work together to keep more of your hard-earned money in your pocket!