When tax season rolls around, knowing what deductions you can legally claim can make a big difference in how much you owe or the size of your refund. Many people are surprised to learn just how many everyday expenses can be partially or fully deducted on their taxes. Whether you’re a salaried employee, self-employed, or a small business owner, being aware of what the IRS allows can help you reduce your taxable income and potentially save hundreds or even thousands of dollars. Here’s a breakdown of common tax deductions that are often overlooked but can be very beneficial if applied correctly.
Home Office Deduction
If you work from home, either full-time or part-time, you might be eligible for the home office deduction. This applies to both self-employed individuals and independent contractors, and in some limited cases, employees who are required to work remotely.
What You Can Deduct
- Rent or mortgage interest for the portion of your home used exclusively as an office
- Utilities such as electricity, water, and gas
- Home repairs related to the office space
- Depreciation of your home (if owned)
The IRS provides a simplified method where you can deduct $5 per square foot of your home office, up to 300 square feet, or you can choose the actual expense method for potentially larger deductions.
Medical and Dental Expenses
Medical and dental expenses can be deducted if they exceed 7.5% of your adjusted gross income (AGI). While this threshold may seem high, large expenses can quickly add up, especially in a year when you or a family member faced a major health issue.
Eligible Medical Deductions Include
- Doctor and hospital visits
- Prescription medications
- Medical equipment like wheelchairs or hearing aids
- Insurance premiums (if not covered by an employer)
- Travel costs for medical care, including mileage
Student Loan Interest
If you’re paying off student loans, you can deduct up to $2,500 in interest paid per year. This deduction is available even if you don’t itemize, making it one of the more accessible tax deductions for individuals and families.
To qualify, your income must fall below the IRS’s set thresholds, and you must be legally obligated to repay the loan. This deduction helps ease the financial burden of education costs, especially for recent graduates just entering the workforce.
Charitable Contributions
Donations to qualified charitable organizations can be deducted if you itemize your deductions. This includes not only cash donations but also property, clothing, vehicles, and even out-of-pocket expenses incurred while volunteering.
Common Charitable Deductions
- Cash or check donations to 501(c)(3) organizations
- Fair market value of donated goods
- Mileage driven for charitable work
- Volunteer expenses (e.g., supplies, uniforms)
Always keep records and receipts for any donation, and be sure the charity is officially recognized by the IRS.
Mortgage Interest and Property Taxes
If you own a home, mortgage interest and property taxes are major deductions that can significantly reduce your taxable income. These deductions are itemized and often add up to thousands of dollars annually for homeowners.
Mortgage interest is generally deductible on the first $750,000 of mortgage debt for loans taken after December 15, 2017. Property taxes are part of the state and local tax (SALT) deduction, which is capped at $10,000.
State and Local Taxes
Aside from property taxes, you can also deduct state and local income taxes or sales taxes, but not both. This deduction falls under the SALT cap and is particularly useful in high-tax states.
Taxpayers often choose between deducting the total amount of state and local income tax paid or the total amount of sales tax paid during the year, whichever provides a bigger deduction. For those who made big purchases like cars or furniture, the sales tax deduction can be substantial.
Business Expenses for the Self-Employed
If you’re self-employed, many costs related to running your business are deductible. This helps lower your net income and, therefore, your tax liability.
Examples of Deductible Business Expenses
- Office supplies and equipment
- Business travel and meals
- Marketing and advertising costs
- Website and software expenses
- Professional services (accountants, legal fees)
Keep detailed records and receipts for all business-related purchases and categorize them accurately for tax filing purposes.
Education-Related Deductions and Credits
Aside from student loan interest, there are other education-related tax breaks you can take advantage of, including the Lifetime Learning Credit and the American Opportunity Credit.
Qualifying Education Expenses
- Tuition and fees
- Books and course materials
- Equipment required for coursework
These deductions and credits help ease the financial impact of continuing education and can apply to you, your spouse, or a dependent.
Child and Dependent Care Expenses
If you pay for child care so that you can work or look for work, you may qualify for the Child and Dependent Care Credit. This includes day care, preschool, or even a nanny or babysitter.
The credit covers up to 35% of qualifying expenses, depending on your income, and is applicable for children under 13 or for a spouse or dependent who is physically or mentally incapable of self-care.
Retirement Contributions
Contributing to retirement accounts like a traditional IRA or a 401(k) can reduce your taxable income. Contributions to these accounts are tax-deferred, meaning you won’t pay taxes on the money until you withdraw it in retirement.
For 2025, you can contribute up to $6,500 to an IRA ($7,500 if you’re over 50) and up to $23,000 to a 401(k), with potential employer matching. These deductions not only help with taxes now but also build your financial future.
Job-Related Moving Expenses
Although moving expense deductions were mostly eliminated under the Tax Cuts and Jobs Act, active-duty military members who move due to a military order can still deduct moving expenses.
Eligible expenses include transportation, storage, and travel costs associated with the move. Civilian employees are generally no longer able to claim this deduction unless specific exceptions apply.
Understanding what you can deduct on your taxes helps you take full advantage of the rules designed to lower your tax burden. From home office expenses and student loan interest to medical bills and charitable giving, each deduction plays a role in reducing your taxable income. Keep accurate records, save receipts, and consult a tax professional if needed to ensure you’re making the most of every legal deduction. With proper planning and awareness, tax season can become an opportunity to improve your financial well-being rather than a financial setback.