Tax Deductions – A Long List
While we all realize that income taxes are how we fund things that are vital to society, such as schools and roads, few of us are actually excited at the prospect of paying income taxes. If you don’t like paying them, you’re not alone; you’ll find that few people actually enjoy this financial obligation.
Of course, many people might get a little more excited about paying their taxes if they realized that they’re probably paying more than they have to. The Federal government allows us to deduct quite a number of things from our gross income and the amount we pay in taxes is based on the income that remains after we’ve taken all of the tax deductions we’re allowed to take. The greater the dollar value of your allowable tax deductions, the lower the amount of taxable income you’ll have.
It turns out that there are quite a few income tax deductions that are available to the majority of taxpayers. While a few are quite obvious, many are a bit more obscure. Clearly, the more you’re aware of the opportunities to save money, the more likely you are to take advantage of some of these tax deductions.
While it’s impossible to create a definitive list of income tax deductions, we’ve put together a list of more than 70 of them. Most readers will be familiar with a number of these, but a few of them are somewhat obscure. For the benefit of those who don’t like a really long read, we’ve broken down these income tax deductions into a number of loosely-related categories.
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Click any of the links below to jump to each category:
Basic Homeowner and Household Tax Deductions
Income Tax Deductions You Might Have Overlooked
Income Tax Deductions You Might Not Know About
Income Tax Deductions You’re Probably Not Taking But Should Be
Peculiar Income Tax Deductions
1. Mortgage Interest Deduction
This is probably the most commonly-used income tax deduction, mostly because so many Americans own their own homes. If you bought your home with a mortgage and the home itself is serving as collateral, you can deduct the interest you pay on the loan, provided that the loan amount doesn’t exceed $1 million (half that if you’re married filing separately.) Sure, that’s not ideal, but Uncle Sam figures that if you can afford a million dollar home, you don’t need his tax deductions to help you pay for it. Your home doesn’t even have to be a house to qualify; a boat or trailer will also qualify under certain circumstances.
2. Prepaid Interest Deduction
If you prepaid interest when you received your mortgage (known as “points”), you can deduct that amount from your taxable income along with other mortgage interest in the year that you paid the points. The same applies of you refinance your mortgage and apply the funds to some sort of home improvements. If you’re using the refinance money for something other than fixing up your home, the points must be deducted over time.
3. Property Taxes
Sometimes, paying taxes can be a good thing, and in this case, the property taxes you pay on your home can be deducted from your taxable income. It won’t get you out of paying property taxes, but it might help reduce the sting just a bit.
4. Private Mortgage Insurance
If you’ve purchased a home in the last decade or so, you may be able to deduct your Private Mortgage Insurance (PMI) payments. Private mortgage insurance is usually required by your lender if you buy the home with less than a 20% down payment. 100% hundred percent of mortgage holders hate it.
If you have PMI, and your income is under $100,000, you can deduct the premiums from your taxable income. If your income is more than $100,000, the rule gets a bit more complicated and the ability to deduct your PMI payments phases out pretty quickly. In that case, you’d best hope that the housing market takes off like a rocket.
Under some circumstances, you can also deduct premiums paid for FHA or VA insurance, as well.
5. Vacation Home Expenses
If you own a vacation home, good for you! Lots of us would love to have a second home, but we’ve yet to win the lottery. That said, if you do own a vacation home, you can, under most circumstances, deduct your property taxes and mortgage interest.
The rules get really complicated if you’re not the only one who uses the home, or if you rent it out some, part, or all of the year. Of course, if you’re renting it out all of the year, you’re not a vacation home owner; you’re a landlord. Regardless, you should consult a tax professional if you own a vacation home and you’re not the only user.
6. Second Time Buyer Tax Deductions
This one isn’t really a deduction, but is actually a credit. If you’re buying a home and it’s not the first time for you, you are entitled to a pretty hefty repeat homeowner credit. If your tax software doesn’t account for this one, we suggest that you talk to a tax professional about it.
7. Tax Deductions for Your Car
A relatively recent change to the Federal tax code allows buyers of new cars to deduct sales tax and excise taxes from their income taxes. We don’t know if that’s sufficient to motivate us to go out and buy a new Lexus, but it’s a help, and we’re grateful.
8. Green Energy Upgrades
Energy efficiency is a good thing. It’s good because energy costs money, and the less you use, the less you pay. If your home isn’t energy efficient, but you do things to help it become so, such as adding insulation or replacing old windows with newer ones, you’ll be entitled to a credit of up to $500. There are a lot of things that qualify, but the amount is somewhat modest, and it’s a lifetime cap. Perhaps that will change down the road.
Here are a few income tax deductions that, while not exactly obscure, aren’t as well-known as the ones listed above.
9. Charitable Contributions
If you spend time hanging out at the homeless shelter on weekends, good for you! Unfortunately, you can’t deduct the value of your time on your tax return. You can, however, deduct the cost of getting there as well as the cost of things you provide to help out. If you use your own office supplies to print fliers for that shelter, for example, you can deduct those costs. If in doubt, consult with your tax preparer.
10. Reinvested Dividends
Have money invested in mutual funds? Many of them automatically reinvest dividend payments into extra shares. That’s great, but doing that automatically increases your “cost basis” for those shares, which reduces your taxable capital gains when you sell. Of course, if you forget to compensate for that and you sell, you’ll be paying more in taxes than you should. Your tax professional should know about this, and many tax-preparation software programs, do, too.
11. State Sales Taxes
If you live in a state (most of them) that has a state income tax, you’ll have the choice of deducting your state and local income tax from your Federal return, or the sales taxes you paid in your state. For nearly everyone, the former will be the greater amount, but if you live in a state without a state income tax, it’s worth your while to keep your receipts. The rules get a bit complex for certain expensive purchases, such as a boat or a personal airplane, but if you’re buying aircraft, you’ve probably got a tax professional on speed dial, anyway.
12. Student Loan Interest From the Folks
Did your parents repay your student loans for you? Awesome! Be sure to thank them. You can, however, deduct up to $2500 in interest from your Federal income taxes, as long as you’re not still being claimed as a dependent. If that’s the case, it’s probably time you moved out, anyway.
13. Moving Expenses to Your First Job
Most job-hunting expenses are deductible, but not if it’s your first job. That’s weird, but you’ll have to talk to your Congressman about that. On the other hand, if you just got your first job, congratulations! If you had to move somewhere to take it, you can deduct the cost of moving there, as well as the cost of moving your things along with you.
14. Child Care and Dependent Care Tax Credits
If you’re paying for child care or for the care of a dependent, you get tax credits for that. Credits are good; rather than reduce your taxable income, they actually reduce the amount of your tax. This one’s a bit complicated and the rules have recently changed, so if you’re paying for care of either your children or Grandma, be sure to ask your tax professional about it.
15. Earned Income Tax Credit
A lot of people qualify for the Earned Income Tax Credit. The unfortunate part is that a lot of the people who do qualify for it fail to take it. There are a lot of reasons for that, including the fact that some of the people who qualify don’t owe anything in taxes and therefore don’t bother. In addition, some people who might not ordinarily qualify for this credit could find themselves eligible under certain conditions, such as having been laid off from a job. Better ask about this one if you’re not sure.
16. Last Year’s State Income Taxes
If you filed a state income tax return last year and you owed money, that amount is deductible from this year’s Federal tax return. That’s an easy deduction to miss, but they all add up, so you’d best go find that return.
17. Self-Employed Medicare Premiums Deductions
If you’re past the age of Medicare eligibility but you’re still self-employed and working, you can deduct the premiums that you pay for Medicare Part B and Part D, as well as a few other related expenses, such as supplemental policies. You won’t qualify if you are your spouse are receiving employer-provided medical coverage.
18. Travel Expenses for Military Reservists
If you’re serving in the military reserve or the National Guard, and you have to travel more than 100 miles from your home to attend meetings or drills, you’re allowed to deduct certain travel expenses, including the cost of lodging and half of your meals, as well as a per-mile deduction if you had to drive to get there.
19. Jury Duty Pay
Did you have to serve on a jury last year? If so, we hope that the case was one of those nail-biting ones like the ones we see on TV. If you did serve, you likely got paid for it, and if you had a job, your employer might have continued to pay you while you served. Of course, when that happens, employers often ask their employees to fork over their meager pay that they received for serving on the jury. That’s a fair trade, but the IRS says that your jury pay that you just gave to your employer is taxable income. Bummer! On the plus side, that means you can deduct it, as there’s no reason to be taxed on income that you handed over to The Boss.
20. Estate Tax Deduction for Inherited Money
If you were fortunate enough to inherit money from someone who was well-off enough to have to pay estate tax, you’re allowed to deduct the amount of the estate tax that was paid on the money you inherited. All clear? Probably not, but it can amount to a pretty good chunk of change, so if Uncle Phil left you a bunch of money, you might want to ask your tax professional about this one.
21. American Opportunity Tax Credit
A complex and often-modified piece of legislation, the American Opportunity Tax Credit was created to help students pay for college. Originally passed in 2009, the bill currently has been extended through 2017. Students are entitled to a maximum annual credit of $2500, and it’s good for all four years of college. There is an income cap on this one, but it’s worth looking into if you haven’t been using it.
22. Airline Baggage Fees
People like cheap airfare, but no one likes those tacked-on fees that seem to come up every time you fly. The most annoying one seems to be the charge for checking a bag. If you have an affinity credit card with the airline and you used it to buy your ticket, your bags are probably free. If you didn’t, but you are self-employed, you can take the baggage fee as a tax deduction. If neither of these apply, you might want to consider a carry-on bag next time.
23. Bonus Depreciation
This one comes and goes, and only applies to people who own their own businesses. Basically, it says that if you bought business equipment during the year, you can deduct half of the equipment’s value in the year that you bought it, rather than having to deduct it over the life of the equipment. A few years ago, this “bonus depreciation” was 100%, then it was 50%, then it was nothing, and then it was 50% again. It’s back…for a while. Buy quickly.
24. Social Security Taxes
Most people don’t realize that they pay 15.3% of their income in Social Security taxes. That’s because people who work for an employer have half of that money paid by the employer. At least, that’s how it’s presented; we all know that everything ultimately comes out of wages, since even the “employer’s” half is part of what it’s costing them to have you do great work for them. That argument aside, if you’re self-employed, you get to pay the full 15.3% yourself, which is not any fun at all. On the plus side, you do get to deduct half of that amount from your taxable income.
25. Amortizing Premiums on Bonds
Do you own bonds? No? Then move on to the next tip, because this one makes us dizzy. If you purchased bonds for more than face value (it’s a long story) If you did, you’re allowed to amortize the premium you paid over the life of the bond. We’re not going to elaborate on this one; if you find yourself in such a situation, chances are good that your tax professional will take care of it. Still, we thought we’d mention it, so here it is.
26. Alimony-Related Expenses
The IRS believes that your marriage, or the dissolution of it, is your business and not theirs. Fair enough, but if you got divorced and you’re receiving alimony, you can deduct the amount that you paid your lawyer to secure that alimony for you. You’ll need a detailed statement from your attorney for this, as the only part of her fee that you can deduct is the part that you paid to get the alimony arranged. Still, it will likely add up to a not-insignificant amount, so go for it.
27. State Income Tax Refund
Did you itemize on your last Federal return? If so, your refund on your state income tax return isn’t taxable, even though there’s a line on the 1040 where you’re supposed to list it. If you did itemize, it might only be partially taxable. This one’s complicated and makes us a bit dizzy. Just ask your tax pro about it.
28. Health Insurance Premiums For Self-Employed
If your medical expenses exceed 7.5% of your adjusted gross income, you can deduct them. That won’t help most people, but if you’re self-employed, you’ll be able to deduct all, that is, 100%, of your deductions. Since health care is so expensive in this country, it’s nice to get the occasional break.
29. Teaching Expenses
In an ideal world, state legislatures would fund our schools appropriately, and no teacher would ever have to use their own funds to pay for school supplies. We don’t live there, and the IRS knows that. Teachers are permitted to deduct up to $250 for supplies and materials that they might have had to buy with their own money.
30. Certain Child Care Costs
Let’s say that you’re spending your weekends volunteering at the local soup kitchen. That’s a good thing, but you’re going to end up losing a lot of money if you’re having to pay a babysitter to watch the kids while you’re feeding the homeless. The IRS has ruled that such costs are deductible, making it less of a burden to help out for charitable causes.
31. Post College Education Expenses
This one varies according to how much you earn, but post-college education expenses, such as taking a class to polish up your skills, are partially deductible. You can deduct 20% of the first $10,000 you spend each year, giving people an added incentive to keep their knowledge and skills fresh.
32. Nonstandard Business Expenses
This isn’t a one-size-fits-all deduction, but if there’s something unique about your business and you have a non-standard expense that ties in with it, you can probably deduct it. Homeowners can’t deduct the cost of doing their laundry at a laundromat, for example, but long-haul truck drivers can. These income tax deductions apply on a case by case basis, but these odd expenses can add up.
33. Traveling When Unemployed
Trips taken while unemployed for the purpose of finding a job are deductible, to an extent. If you’re looking for work in Las Vegas, you can deduct the cost of your hotel and/or airfare, for example. You won’t be able to deduct the show tickets, but food and lodging are likely OK.
34. Health Insurance Coverage for Displaced Workers
Lost your job to overseas outsourcing? You might be eligible for Trade Adjustment Assistance, and part of that says that the government will pay as much as 80% of your health care costs. There are some qualifications, and the usual hoops to jump through, as we are dealing with the government here. Check with your tax pro on this one.
35. Home Office Tax Deductions
If you work at home, you’re allowed to deduct a portion of the rent or mortgage, and a portion of the monthly utility costs, based on the amount of the home that you use for your business. This is a deduction that a lot of people fail to take, as many perceive it to be a “red flag” for an IRS audit. That’s no longer an issue, and the IRS isn’t as strict about this as they used to be.
36. Magazine Subscriptions
Self-employed and need to subscribe to magazines or journals as part of your work? They’re deductible, provided that they’re relevant. If you’re a CPA, you can write off your subscription to an accounting journal, but you won’t get away with trying to deduct your Sports Illustrated subscription.
37. School Books
In college? Buying a lot of books? Sorry, but they’re not deductible. However, if you’re out of school and you discover that some academic books are useful as resources for your business, those books are deductible? Does that make sense? We didn’t think so.
38. Recovering From a Disaster
Are you a recent victim of a tornado? Hurricane? Earthquake? If Federal aid was issued for your area, you can likely deduct certain expenses that you incurred in getting your home back in shape, provided that those expenses were not covered by insurance.
39. Financial Planning
It’s smart to plan for your future and for that, you’ll often need to hire a financial adviser or tax planner or subscribe to financial publications. These expenses are deductible if you itemize and are likely wise even if you don’t.
40. Business Conventions in Foreign Countries
If you attend a business convention in Bermuda, Barbados, Costa Rica, Dominica, Dominican Republic, Grenada, Honduras, Jamaica, Trinidad, Tobago, Canada and Mexico, you can write off the expense. You don’t even need a valid reason for having the convention in those places. Keep in mind that it’s expensive doing that, so while the costs are deductible, they might not actually be sensible. Use your judgment, and don’t forget to wear sunscreen.
41. Health Savings Accounts Contributions
If you have a health savings account, your personal contributions are deductible. That does not apply to employer-provided contributions.
42. Bad Debt
So you agreed to give that guy the inventory, you added the amount to your gross income, he hasn’t paid you back, and it’s been five years? You can probably deduct the value of that inventory as bad or uncollectible debt.
43. Donated Inventory
Sitting on a bunch of widgets that you can’t move? Donate it! Instead of sitting on that cash in the form of something you can’t sell, you can donate it to charity and write off the value. The IRS is a bit picky if the value exceeds $500, so be sure to keep documentation handy.
44. Commuting Expenses
If you commute to work, your expenses are not deductible. Sorry about that. On the other hand, if you commute to work and have two (or more) jobs, the expenses incurred in getting from one job to another are deductible. That’s nice, but it would be better not to have to work two jobs, wouldn’t it?
45. Child Labor Deductions
No, the IRS isn’t suggesting that you open a sweatshop, but if you own a business as a sole proprietor and you hire your children to help out, you can deduct the salaries that you pay your children up to a certain limit (check with a tax pro on that one.) You also won’t have to pay Social Security taxes on your children’s income if they’re under the age of 17.
46. Retirement Plan Contributions
Contributions to certain types of retirement plans (you do have a retirement plan, right?), including traditional IRAs and Simplified Employee Pension plans may be deductible. If you have a Roth IRA, good for you! You don’t get to deduct those contributions. Sorry.
Yes, it’s a legal medical procedure, and if you had one and you paid out of pocket, you can deduct the expenses from your taxable income.
48. Organ Donation
If you’re donating an organ to someone, we applaud you for your generosity. The IRS will also allow you to deduct all expenses incurred in the process, including transportation.
49. Breast Pumps
If you’re a new mother and you need a breast pump for any reason, that’s a deductible medical expense.
50. Buying a Wig
Don’t like your hairdo? Want to cover it up with a wig? Sorry, the IRS can’t help you with that. You’ll just have to find a good stylist. On the other hand, if you’re suffering from alopecia or some other medical condition that has caused your hair to fall out, such as chemotherapy, the IRS will allow you to deduct the cost of a wig.
51. Service Dogs
Pets show up a lot on this list. We like pets. If you’re disabled and you need a service dog, you’ll be able to deduct the cost of food and veterinary care. We hope you find a nice one.
Here are a few deductions that have been ruled allowable by either courts or the IRS. This is one of those cases where the deductions might be specific to only certain individuals or certain lines of work. We recommend that you check with a tax professional before going all in on these slightly odd income tax deductions.
52. Owning a Pet
No, you don’t get a deduction for your cat Mittens. Not in general, anyway. On the other hand, if you own a business and you have a problem with rodents, and you need to have a cat there to keep the mouse population down, then the cost of owning that animal is deductible.
53. Moving a Pet
If you’re moving to take a new job, you can deduct a number of personal expenses involved, including the costs associated with moving a pet. Really. Fido can go with you, and Uncle Sam will let you write off the cost.
54. Swimming Pool
Swimming pools are fun. Why would the IRS allow anything fun to be deductible? You can deduct costs associated with a swimming pool if your doctor will verify that you have a medical condition that can be aided through swimming.
55. Music Tax Deductions
This one’s really weird, so you’d best have your tax pro check it out. In the early 1960s, several dentists testified that playing the clarinet can help fix an overbite, making the cost of the instrument as well as the lessons involved in learning to play a deductible expense. We don’t think you’d get a similar deduction with an electric guitar, though you might if you were able to demonstrate that learning to play it was helping a medical problem.
56. Smoking Cessation and Drug Rehab Costs
Still smoking? Still using heroin? You should probably quit, but you know that. What you might not know is that the cost of discontinuing that habit, such as the cost of nicotine patches, going to rehab, or joining a support group are tax deductible.
57. Attorney Fees for Tax Avoidance
If you’re engaged in illegal activities and you profit from it, your profits are taxable as income. The IRS says they won’t tell the authorities, but we can’t verify that. What we do know is that if you don’t pay those taxes and you’re caught, you’ll be prosecuted. On the plus side, if you have to hire an attorney to defend yourself against those charges, the costs qualify as tax deductions.
58. Becoming Fit, or at Least, Becoming Somewhat Fitter
Are you an out of shape couch potato? Need to go to the gym and drop a few pounds? The costs of doing this could be deductible if your doctor puts it in writing. That should offer enough inspiration to get you up and moving around. Besides, you’ve been meaning to join that gym, right?
59. Cosmetic Surgery
Lots of people would like to get cosmetic surgery and it would be great if you could write it off as a tax deduction. Unfortunately, fixing that nose isn’t likely to be an approved deduction by the IRS. However, if you can demonstrate that you must have that cosmetic surgery for business reasons, you may be allowed to deduct. The best example of this would be surgery for breast augmentation for exotic dancers. Courts have ruled that this is an acceptable deduction, as dancers with larger breasts typically earn more money, which qualifies it as a legitimate business expense.
60. Private Airplane
Do you own a private airplane? Cool! We’d like one, too. You don’t get to deduct the costs of operating a private plane as a general rule. The IRS did allow a couple who used a private plane to travel to rental property that they owned some hours away to deduct the cost of those trips as business expenses. While that’s nice, private planes are really expensive, so these deductions aren’t going to help make them any more affordable.
61. Gambling Losses
Given the explosive growth of the gambling industry in the U.S. in the past two decades, we suspect that more people are using this deduction. No, you can’t write off your gambling losses as a rule. You can, however, apply gambling losses against your winnings, provided that the amount of the losses don’t exceed your winnings. If you lost $5000 playing craps but then won $10,000 on a slot machine, you can deduct the $5000.
62. Boarding School
Don’t start packing Junior’s bags just yet. You can’t write off the cost of a private school under all circumstances, but in at least one case, the IRS approved a deduction for a family who sent their child to boarding school because the school was located in a climate that helped the child’s health problems.
63. Gifts to Business Associates
You’re allowed to deduct as much as $25 per gift for each one you give to business associates, provided that the gifts are legal. This is the sort of thing that adds up, so keep good records.
64. Lawn Care
As a rule, your lawn, and the costs associated with its upkeep, is your problem. If you’re working at home, however, and the appearance of your home is vital to your business, you can write off the costs of the upkeep of the lawn.
65. Free Beer
Tax deductions for free beer? Yes! In at least one case, the cost of beer was allowed as a deduction for a business that gave it away as part of an advertising promotion.
66. Whaling Boats
Do you hunt down whales for a living? Not likely, as the U.S. government only allows it under very limited circumstances. Still, if you do, you’re allowed to deduct expenses related to that particular line of work. Let us know if you see a white one, Ahab.
67. Significant Other Tax Deductions
You just knew there was a reason to keep that deadbeat boyfriend around, right? If you’ve lived together for an entire year and your significant other has an annual income of under $3900, you can claim them as a dependent. The amount that you can deduct is subject to certain qualifications.
68. Kidnapped Children
If your children have been kidnapped, you have our sympathy. We hope they’re returned to you safely and soon. On the plus side, should they remain kidnapped, the IRS will allow you to claim them as dependents until they turn 18. It’s a small consolation, we know, but it’s better than nothing.
69. Fraud Restitution
So, you ripped someone off and got caught. Bad for you, but good for them, as they’ll get their money back after The Man demands that you repay them. If your victims had included the amount that you stole from them in their income, then you can deduct the repayments from your taxable income. You’re still likely going to jail, but one should be thankful for small things.
70. Sport Utility Vehicles
Business-related SUVs are deductible under certain conditions. The rules have been changed recently to prevent well-heeled people from buying SUVs to drive Johnny to school and then writing them off. The rules are tougher now, but if you need a really big vehicle and it’s business-related, you can probably deduct it.
71. Organic Food
Tax deductions for shopping at Whole Foods? In at least one case, the IRS ruled that someone with dietary problems could deduct the difference in price between regular store-bought food and organic food from the health food store as a medical expense.
72. Depreciating Your Llama Herd
If you’re a farmer or a rancher, you’re allowed to depreciate your livestock as assets as though they were tractors or combines. The rule doesn’t specify that the animals must be pigs, cows or chickens, so ostriches or llamas would likely qualify, too.
Income Tax Deductions Tips Conclusion
While the 70+ income tax deductions tips listed here are certainly helpful, this list is far from complete. A qualified tax professional can probably tell you about many more, and will likely have a good idea as to which of them are most relevant to your individual finances. It’s also worth a reminder that we’re not tax professionals, so please don’t cite us as a source if you get in trouble with the IRS.
If you’re interested in saving the most money you possibly can, you can learn how to maximize your income tax deductions here.