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7 Tax Deductions You Might Not Know About

March 1st 2016 by
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Tax Deductions

Taking every deduction you’re entitled to can make a real difference at tax time. These seven unexpected tax deductions will reduce what you owe, or perhaps even earn you a refund.

1. Taxes already paid

Most people know to deduct state, local and property tax, but these aren’t the only deductible taxes. You can also deduct sales tax, which brings sizable savings after major purchases such as diamond jewelry or a car. Foreign taxes paid may qualify for deduction as well, and co-op owners can deduct their portion of the building’s property tax.

For the self-employed, the required 15.3% of income owed as Social Security tax can be a strain. There is a small break in this situation, though: A deduction of 7.65% of income is allowed, which is what your employer would have contributed if you worked in traditional employment.

2. Preparing for retirement

The payoff of retirement saving may seem distant, but it can actually bring immediate tax relief. Annual 401(k) contributions up to $18,000 (if 49 and younger) or $24,000 (age 50 or older) are automatically tax-deferred.

Another way to defer income is to contribute up to $5,500 (age 49 or younger) or $6,500 (age 50 and older) to a traditional IRA account, available at a financial institution like Aspire Federal Credit Union. You’ve still got time to make an IRA contribution for this past year, as long as it’s done before April 15. And if your income is low to moderate, you may qualify for a Retirement Savings Contribution Credit as well.

3. Tough times

If this has been a hard year, Uncle Sam might lend a helping hand. Significant losses could be deductible if they exceed 10% of your adjusted gross income and aren’t covered by insurance. Some qualifying situations include:

  • Car accidents
  • Vandalism
  • Storm, flood, earthquake and fire property damage
  • Shipwrecks
  • Terrorist attacks

4. Some interest

Though you can’t deduct interest from credit cards or personal loans, many other types of interest are deductible. These include mortgage and home equity interest and points, student loan interest, and even interest on boats that contain living quarters. Additionally, people who own co-ops may deduct their share of the building’s mortgage interest.

5. Unconventional business expenses

In addition to obvious business expenses like uniforms or office supplies, the IRS also sometimes accepts more-offbeat deductions. For example, a junkyard owner could deduct cat food purchased to attract stray cats for rodent control. And a bodybuilder might deduct oils used during competition. When calculating deductions, be sure to also include job-seeking expenses like resumes, hotels and transportation.

6. Continuing education

Heading back to school can result in a tax break, no matter how long you’ve been away or how old you are. If schooling brings new or improved job skills, the Lifetime Learning Credit may provide up to $2,000 annually.

7. Charitable gifts

It’s commonly understood that donating money to charity is deductible. What not everyone realizes is that non-cash donations — including vehicles, clothing and other items of value — may also qualify. In addition, donation expenses such as the ingredients to bake cookies for a fund-raiser and the parking meter you feed while delivering those cookies are also deductible.

Uncovering hidden deductions transforms your annual tax ritual from a nightmare into something satisfying. The money saved will put a smile on your face today as it brings your most important future goals within closer reach.

Roberta Pescow, NerdWallet

© Copyright 2016 NerdWallet, Inc. All Rights Reserved

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