Tax Deductions: What You Can Claim and Mistakes to Dodge
Tax season can be a great time to get a refund, but only if you maximize your deductions. Knowing what you can legally deduct lowers your taxable income and puts more money back in your pocket. Unfortunately, many taxpayers miss out on potential savings due to misunderstandings and oversights. Let's uncover common deductions and the pitfalls to avoid.
Eligible Tax Deductions: The Usual Suspects
Home-related Deductions: Mortgage interest, property taxes, and potentially a portion of your rent or utilities if you have a designated home office are prime deductions.
Charitable Giving: Don't just give, get a receipt! Donations to qualified charities can reduce your taxable income.
Medical Expenses: If your medical costs exceed a certain percentage of your income, you may be able to deduct them.
Education Expenses: Qualified tuition, fees, and student loan interest might be deductible.
Retirement Savings: Contributions to traditional IRAs, 401(k)s, and similar plans reduce your current taxable income.
Self-Employment Deductions: This is a broad category – think business equipment, travel, advertising, and a portion of your health insurance premiums.
Common Deduction Missteps
Missing Receipts: Records are your best friend. Without proof of expenses, the IRS won't allow your deduction.
Overestimating Values: Donating used clothing? Use fair market value, not what you originally paid. Inflated values trigger red flags.
Ignoring State and Local Taxes (SALT): These taxes can be deducted up to a limit, providing relief in high-tax areas.
Forgetting the Small Stuff: Subscriptions, professional fees, even the cost of tax preparation software can add up to meaningful deductions.
Overlooking Changes: Life events like getting married, buying a house, or starting a business can unlock new deductions.
Deductions That Raise Eyebrows
Some seemingly deductible expenses warrant caution and often require professional guidance:
Large or Unusual Donations: Generosity is great, but disproportionately large donations compared to your income can trigger scrutiny.
Hobby Losses: If your "side hustle" consistently loses money, the IRS might see it as a hobby, limiting deductions.
The Home Office Deduction: Strict rules apply. Ensure your workspace is truly used exclusively for business.
Maximize Your Savings
Start Early: Don't wait until April to organize tax documents. Track expenses throughout the year.
Use Software: Tax preparation software can streamline the process and help identify potential deductions you might miss.
Get Professional Advice: A Callison CPA tax advisor is invaluable, especially for complex situations or larger deductions.
Callison CPA Can Help
If you’re concerned about whether you’re realizing all the available tax savings, or worried you might be making a mistake, we are here to help. Our tax advisors will review your information and identify all your potential deductions to ensure you minimize your tax liability as much as possible. Contact us today to schedule a free consultation.