Tax Deductions Most People Miss
Every year, millions of taxpayers pay more than they owe — not because tax law requires it, but because they don't know about deductions and credits they qualify for. Whether you itemize or take the standard deduction, there may be money you're leaving on the table. Here are commonly overlooked tax deductions and credits worth reviewing.
Understanding Deductions vs. Credits
Before diving in, it's important to understand the difference:
- Tax deductions reduce your taxable income. A $1,000 deduction in the 22% bracket saves you $220.
- Tax credits reduce your tax bill dollar-for-dollar. A $1,000 credit saves you $1,000. Credits are more valuable.
Commonly Missed Deductions
State and Local Sales Tax
If you live in a state without income tax (like Texas, Florida, or Washington), you can deduct state and local sales tax instead of state income tax on your federal return. The IRS provides tables to estimate your deduction, or you can total your actual receipts. This is part of the SALT deduction, which is currently capped at $10,000.
Student Loan Interest
You can deduct up to $2,500 in student loan interest paid, even if you don't itemize. This is an "above-the-line" deduction available to most borrowers below certain income thresholds. If you're working on paying off student loans faster, you're likely eligible for this deduction.
Home Office Deduction (Self-Employed)
If you're self-employed and use a dedicated space in your home exclusively for business, you can deduct a portion of your housing costs (rent, utilities, internet) or use the simplified method ($5 per square foot, up to 300 square feet). Note: this deduction is not available to W-2 employees, even those who work from home.
Charitable Contributions
Beyond cash donations, you can deduct the fair market value of donated goods (clothing, furniture, household items). Keep records and receipts. Mileage driven for charitable purposes is also deductible at the IRS-set rate.
Medical and Dental Expenses
If your unreimbursed medical and dental expenses exceed 7.5% of your adjusted gross income (AGI), the excess is deductible when itemizing. This includes health insurance premiums you pay out of pocket, co-pays, prescriptions, dental work, vision care, and even mileage to medical appointments.
Educator Expenses
Teachers and other eligible educators can deduct up to $300 in unreimbursed classroom expenses — even without itemizing. This covers supplies, books, computer equipment, and professional development courses.
Commonly Missed Credits
Saver's Credit
Low and moderate-income taxpayers who contribute to a 401(k), IRA, or similar retirement account may qualify for the Saver's Credit — worth up to $1,000 for individuals ($2,000 for married couples filing jointly). Income limits apply, but many eligible taxpayers don't claim it.
Earned Income Tax Credit (EITC)
The EITC is one of the largest credits available, worth up to several thousand dollars for qualifying low-to-moderate income workers. Many eligible taxpayers don't claim it because they don't know they qualify or don't file a return. If your income is modest, check your eligibility — it could result in a significant refund.
Child and Dependent Care Credit
If you pay for childcare or dependent care to work or look for work, you may qualify for a credit of 20–35% of qualifying expenses (up to $3,000 for one dependent, $6,000 for two or more).
Lifetime Learning Credit
If you're taking courses to improve job skills or pursue education (even if you're not pursuing a degree), the Lifetime Learning Credit offers up to $2,000 per tax return. Income limits apply.
Energy-Efficient Home Improvements
Federal tax credits are available for energy-efficient home improvements including solar panels, heat pumps, insulation, and energy-efficient windows and doors. These credits can be substantial — up to 30% of costs for solar installations, with additional credits for other improvements.
How to Catch What You're Missing
- Keep records year-round. Don't try to reconstruct deductions at tax time. Track medical expenses, charitable donations, and business costs throughout the year.
- Compare itemizing vs. standard deduction. Even if the standard deduction is typically better for you, run the numbers — a year with high medical expenses or a major charitable gift might tip the scales.
- Use tax software or a professional. Good tax software walks you through potential deductions and credits. A qualified tax professional can identify savings you might miss on your own.
- Review previous returns. If you missed a deduction or credit in past years, you can file an amended return (Form 1040-X) within three years to claim a refund.
Taxes are part of life, but overpaying doesn't have to be. Take the time to understand what you qualify for, and make sure your budget accounts for tax-efficient strategies throughout the year — not just in April.
