Top 5 Overlooked Tax Deductions

Tax time is here again, and if you’re not taking all the deductions you’re entitled to, you could end up owing the government more than you should. Deductions change from year to year, so make sure you review the rules every time you file taxes. Here are some of the most common (and most overlooked) tax breaks that could save you thousands on your tax bill:

You can deduct income taxes, but what if you live in a state that doesn’t charge income taxes? If that’s the case, you can deduct sales taxes. Here is an IRS calculator to help you determine your deduction.

Anyone who works from home can take certain deductions for their home offices. If you work from home but you’ve avoided this deduction to prevent an audit, this year, you should reconsider. If you do work out of a home office, it’s well worth it for you to take the home office deduction.

But in order to take this deduction, you do need a separate home office. Wherever it is, it needs to be isolated to only work activities. This is called the exclusive-use requirement. So if you have a designated home office space where you work at least a few hours every day, and most of your business is conducted there, you are probably eligible for this tax break.

If you decide to take this deduction, your next step is to figure out the percentage of your home that is used for your business. An easy rule of thumb is to take the square footage of your office space divided by your total home square footage. That is your business percentage for your home. You can use that number to to factor in property taxes, direct and indirect expenses (like a special business phone line or a portion of your utilities) and rent.

If you’re paying student loans, you are able to deduct the interest you’ve paid over the year. This deduction works by reducing your taxable income by up to $2,500 if you qualify. If you make at least $65,000, however, that deduction will be reduced by a lot. You can find out more about the student loan deduction here.

Health savings accounts, or HSAs, offer multiple tax benefits that many people don’t know about. Contributions are tax deductible, or even pretax if made via payroll. Another bonus: Any interest made is tax-free. So if you have an HSA, make sure you’re aware of all the benefits come tax time.

If you pay someone to take care of your children, you may be eligible for the child and dependent care tax credit. And this is a tax credit, not a deduction. That means that if you get a tax credit for $500, your tax bill will be reduced by $500. Regardless of your income level, you can still get this credit.

By spending a little more time to see what deductions you qualify for, you can save yourself a hefty amount in tax breaks. For more information, see our other tax-related posts on getting ahead with a tax checklist and how to prepare yourself for tax season.