Uncovering Hidden Tax Deductions
When you file your taxes, you know accuracy is critical. However, there are lots of ways to complete a tax return and while your return may be accurate, it doesn’t mean that you’ve taken advantage of every deduction available to you. Uncovering hidden tax deductions and knowing which tax tips apply to you is a key factor in lowering your tax bill.
Keeping up-to-date on what’s deductible for you, that’s another story. Tax laws change over time and so can your situation, so there may be deductions that apply to you now that didn’t in the past.
Things That Are Tax Deductible
We’ve gathered a brief list of deductions and tax tips to give you an idea of how varied they can be.
- Hobby income – If you have a hobby, such as baking desserts for your friends and social functions, you can’t deduct the ingredients. However, if you sell your baked goods occasionally, such as at the county fair, you can deduct the ingredients – as well as the cost of the booth – as hobby expenses. Keep in mind, you can’t deduct more expenses than income from the hobby. Expenses are deductible only as miscellaneous itemized deductions on Schedule A, subject to a 2% of adjusted gross income limitation. Starting in 2018, miscellaneous “2%” expenses will no longer be deductible.
- Self-employment taxes – Taxpayers who are self-employed pay both the employer and the employee portions of Social Security and Medicare taxes, commonly called “payroll” taxes. But when you’re self-employed, it’s a self-employment tax. Unlike the employee who can’t deduct his or her payroll taxes, a self-employed taxpayer can deduct half of the self-employment taxes paid. And this deduction is “above the line” – you don’t have to itemize deductions to claim this one.
- Private mortgage insurance – Homeowners who put down less than 20% of the purchase price of their home may end up paying private mortgage insurance premiums. These premiums had been deductible as mortgage interest, but that provision of the tax law expired on December 31, 2016. Thanks to a budget bill signed in February 2018, the deductibility of these premiums was reinstated back to January 1, 2017, through December 31, 2017.
- Business expenses – If you own a business, you may be able to deduct the cost of certain expenses if they benefit your business. In order to deduct an expense, the expense must be ordinary and necessary for your business. Ordinary means the expense is common for your trade or profession and necessary means it is helpful and appropriate. Take note, if you plan to deduct the cost of something as a business expense, be sure to keep your receipts and any other records to document its purpose in relation to your business.
- Health Savings Accounts – Health Savings Accounts, or HSAs, are special savings accounts you can tap for medical expenses. HSAs provide tax benefits on three levels. First, you can deduct contributions made to your HSA (up to $3,400 for single coverage, and up to $6,750 for family coverage, with an additional $1,000 if you’re at least age 55) in 2017. The second tax benefit is that earnings in the account grow tax free. The third benefit is that you don’t pay any tax when you take money out of the HSA to pay for qualified medical expenses. Generally, these include any medical expense that you would be able to deduct. But you don’t need to itemize deductions to benefit from an HSA. In order to contribute to an HSA you must have a qualifying high deductible health plan.
Find Tax Deductions with Help from H&R Block
What deductions should you be aware of? To find the answer to that question, it makes sense to tap into the expertise of tax professionals.
The Tax Pros at H&R Block can help you find the hidden tax deductions that pertain to you. They devote their lives to understanding the intricacies of taxes and helping you maximize your return.Disclaimer number84. Scroll to bottom of page. What’s more, the Tax Pros at Block are armed with the power of IBM Watson – AI technology that can connect tens of thousands of pages of U.S. tax code to your personal situation.
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