6 Hidden Tax Deductions That Lower Your IRS Bill
Filing a tax return can feel straightforward, but there are certain (and often overlooked) deductions many taxpayers could be using to lower the amount they owe. Since many filers tend to default to taking the standard deduction, this is especially common with lesser‑known itemized deductions.
Documents such as W‑2s or 1099s are typically used to report earnings during the year. From there, you can choose between the standard deduction or itemizing deductions, which may make sense if eligible expenses exceed the standard amount.
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However, several deductions come in the form of tax credits or direct reductions of your income. Knowing about these deductions and claiming them could significantly reduce your taxable income. Here are a few that you may or may not be familiar with that you may be able to use to reduce the amount of tax you owe the IRS this year.
1. Mortgage Interest
This deduction is available to homeowners paying interest on their mortgage every year. Homeowners may be able to deduct mortgage interest, subject to IRS limits that can change over time. This is one you don't want to miss because it offers opportunities to reduce your taxable income based on how much you've paid out in interest on your home loan.
Mortgage interest and property taxes are two of the most well-known, but you can also deduct any points you pay to acquire or refinance a mortgage. Mortgage points are upfront cash payments you make to reduce the interest rate that you'll pay on your mortgage. As the points are essentially prepaid interest, they are deductible in the same way as regular mortgage interest.
2. SALT Deduction
SALT stands for "state and local taxes." The SALT deduction allows taxpayers to deduct certain state and local taxes, subject to federal limits.
State and local income taxes have long been used as a tax deduction, but many Americans are unaware that they can opt instead to take a deduction for sales taxes. While the deduction for state income taxes is usually larger, particularly in states like California with high-income tax rates, some states have no income tax at all.
In this case, deducting your paid sales taxes may still allow you to get a tax break, as long as your itemized deductions exceed your standard deduction.
3. Student Loan Interest
While some college expenses are tax-deductible, many taxpayers assume that once they graduate, such deductions are no longer allowable. Eligible borrowers may be able to deduct student loan interest, subject to income limits and IRS rules.
To qualify for this deduction, borrowers must have paid interest on an eligible student loan in the tax year and are under legal obligation to pay this interest.
4. Medical and Dental Expenses
Taxpayers who itemize may deduct qualifying medical and dental expenses that exceed a portion of their income.
5. Home Office (for Self-Employed)
Those who use a specific part of their home exclusively and regularly to conduct business may qualify for the home office deduction. You'll calculate the percentage of your home designated for business activities.
The home office deduction is available to both homeowners and renters, but only applies to self‑employed individuals. Remote or hybrid employees who work from home don't qualify.
6. Charitable Contributions
Most taxpayers are aware that they can deduct the value of goods or cash donations they make to charities. However, there are other expenses you can deduct that may not immediately register as charitable donations.
For example, if you buy ingredients to make cookies or cakes for a charity bake sale, the IRS allows you to deduct the cost of those ingredients as a charitable donation.
This article was provided by MoneyLion.com for informational purposes only and should not be construed as financial, legal or tax advice.
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