Money Back in Your Pocket: Some of the Most Overlooked Tax Deductions and Credits
By: Sierra Hoggatt
Paying taxes is likely not the highlight of anyone’s year. However, for many of us, we may shortchange ourselves when itemizing our deductions. Recent data shows that the taxpayers who took the time to scrutinize and itemize their deductions claimed $1.2 trillion in deductions. Those who claimed the standard deduction claimed just $747 billion, a difference of $453 billion. That’s a lot of money left on the table!
If it applies to you, it’s a deduction or credit you should take advantage of to keep more money in your pocket. It’s worth taking some time to find those less-known deductions.
Here are a few of the most overlooked tax deductions and credits that deserve closer examination:
Earned Income Tax Credit
Also known as EITC, this refundable tax credit, not a deduction, is geared towards lower-income earners to supplement their wages. However, the IRS has said that 25% of taxpayers who would qualify for this credit fail to claim it, perhaps not knowing that they’re entitled to it.
Sometimes, a family considered “middle-class” could fall into the low-income category due to a job loss, pay cut, or reduction of hours worked. If you’ve fallen on hard times, looking at this credit can relieve a little stress around tax season. Even if you missed out on the credit you were eligible for but didn’t take, you can file an amended return any time during the year to claim the credit and get a refund. You can file this amended return for up to three previous tax years.
Out-of-Pocket Charitable Contributions
Did you know that if you drove your car for a charitable cause (maybe you were picking up supplies for a soup kitchen or delivering meals to a retirement home), you could deduct 14 cents per mile from your taxes? Those ingredients for those world-famous lemon bars you served at your school’s bake sale? Write ‘em off! Of course, you’ll need your receipts but many times, we often forget that our small acts of kindness can be rewarded during tax season.
Student Loan Interest
Soon to be more applicable this year and in the years to come now that student loan repayments have resumed, a new component to paying back these loans has been implemented. Now, even if someone else is paying back your loan for you, like say, a parent, you can claim a tax deduction on the interest on your own taxes. A student who isn’t claimed as a dependent can qualify to deduct up to $2,500 of student loan interest paid by themselves or someone else.
State Tax From Last Year
Did you owe money on your state taxes last year? If so, make sure you include that on your return for this year, along with any state income taxes withheld on your paycheck. Note that this deduction is limited to a maximum of $10,000 a year.
Of course, this list doesn’t represent all the tax credits and deductions available to you. There may be many more ways for you to shave some money off your tax return and put it back in your pocket. Reach out to a trusted and celebrated certified public accountant at Squire to get your most thorough and personalized tax return yet.
Energy-Saving Tax Credits
If you made home improvements that include energy-efficient upgrades, you will benefit from lower bills but also lower taxes. You could qualify for a tax credit up to $3,200. The credit has no lifetime dollar limit and you can claim the maximum annual credit every year that you make eligible improvements until 2033.
Clean Vehicle Tax Credits
On top of energy efficient tax credits, certain clean vehicles also qualify for tax credits. If you are thinking about purchasing an electric vehicle in 2023, check to see whether it will qualify for a clean vehicle tax credit. The rules for this credit were updated for 2023. A new, qualified vehicle could qualify for a credit up to $7,500 whereas a used vehicle could qualify for a credit up to $4,000.