8 Tax Deductible Options You Don’t Know About Yet

Tax season can be an exciting, yet stressful time of year.

Fewer realizations are more painful than discovering a missed deduction that could have increased your tax refund or decreased the state or federal taxes you owe.

Unless this is the first year you’ve filed taxes on your own, you are probably familiar with the most common tax write-offs. But what about the less-common, or frequently forgotten about, write-offs?

From charitable donations, to child and dependent care credit, to higher education credit, there are quite a few tax write-offs that you may be eligible for.

1. American Opportunity Tax Credit

The American Opportunity Tax Credit is for first-time college students making their way through the first four years of college or other higher education.

Students can receive a maximum annual credit of $2,500. If this credit brings the amount of taxes owed by the student to zero, they could be entitled to up to $1,000 added to their tax refund.

To be eligible, the student must be pursuing a degree or other recognized educational credit and enrolled at least part-time at the start of the tax year.

The academic period can be semesters, trimesters, quarter, or any other period of study — like a session of summer courses.

To save yourself time and energy before filing, make sure you or the student is qualified for the American Opportunity Tax Credit. Be sure to also maintain copies of the documents used to find out if you or the student qualifies, in addition to tax return information. It is always best to retain this information for your personal records.

2. Lifetime Learning Credit

The Lifetime Learning Credit is for adults who are pursuing higher education.

Unlike the American Opportunity Tax Credit, it is not restricted to first-time college students.

To be eligible, students will need to be enrolled at an eligible educational institution, taking higher education courses to receive a degree or other recognized education credential, and enrolled for at least one academic period at the beginning of the tax period.

Much like the American Opportunity Tax Credit, an academic period is considered a semester, trimester, quarter, or any other period of study. Academic periods are set and defined by the higher education institution.

3. Child & Dependent Care Credit

Caring for a child or dependent in your household is a selfless act that shouldn’t go unnoticed and you could be eligible for a tax write off.

You could be eligible to claim the child and dependent care credit if you paid expenses for the family member that allowed you or your spouse to actively look for work.

Eligible expenses are considered those that are used for the care of a qualifying individual if the primary reason for paying the expense is to assure the individual’s well-being and protection.

Qualifying children or dependents are individuals in the home under the age of 13 when the care was provided, a spouse who was physically or mentally incapable of self-care living in your home, or an individual who was physically or mentally incapable of self-care and lived with you for more than half of a year.

4. Child Tax Credit

Most people with children know they are able to claim kids living in their home until the age of 18. But taxpayers can claim more than just biological children.

Children and teens living in the home that fall into any of the following categories could save you up to $2,000 each year.

  • Biological child
  • Stepchild
  • Foster child
  • Sibling, stepsibling, or half-sibling in your care
  • Grandchild
  • Adopted child
  • Niece or nephew in your care

5. Charitable Contribution Deductions

Charitable donations are one of the most common, but sometimes overlooked, ways to receive a tax deduction.

Contributions of money or donated property to qualified organizations are eligible tax deductions, but you will need an itemized receipt of deductions.

In some cases, taxpayers can deduct up to 50% of their adjusted gross income.

6. Health Savings Account Contribution

Some health plans and employers offer health savings accounts, meaning that the contributions made to the account are not subjected to federal income tax.

7. Residential Energy Credit

Whether you’re a new homeowner making updates, or you’ve owned your home for a few years and finally able to make a few energy-conscious updates, you could claim a residential energy credit.

This credit includes, but is not limited to updating the following:

  • Energy-efficient windows and doors
  • Roof
  • Insulation
  • Energy-efficient heating and AC systems
  • Water heater
  • Biomass stove

Some solar electric property and solar water heaters are included as well.

8. Medical & Dental Expenses

Even if you have medical insurance, there could still be situations when you must pay a medical bill out of pocket. These expenses could be an eligible tax write off for you, your spouse, or dependents if the amount does not exceed 7.5% of your adjusted gross income.

Potential medical and dental tax write-offs include:

  • Hospital care, residential nursing home care, and acupuncture treatment.
  • Payments for insulin, eyeglasses, contact lenses, hearing aids, crutches, wheelchairs, guide dogs or other service animals.
  • Fees paid to doctors, dentists, specialists, mental health professionals, and nontraditional medical practitioners.
  • Treatment for alcohol, drug addiction, smoking-cessation programs, prescription drugs for nicotine withdrawal and other related addiction needs.

Unfortunately, over-the-counter medications and most cosmetic surgeries cannot be deducted.

Little-Known Deductions to Claim this Tax Season

Give your bank account and 2020 standard deduction — and future deductions — a break by claiming these tax deductions. You never know how much money you could be missing when you don’t claim these extra deductions.

For more money saving tips, contact the experts at Hudson River Community Credit Union.