As tax season approaches, many Americans are looking for ways to maximize their refunds and reduce their liabilities.
However, a significant number of taxpayers miss out on valuable tax credits and deductions that could save them substantial amounts of money.
Certified public accountants (CPAs) and financial experts have identified several commonly overlooked tax breaks that could make a big difference in what you owe. Here’s a look at 10 of these frequently missed opportunities.
1. Child Tax Credit
One of the most beneficial tax credits for families is the Child Tax Credit. Eligible parents can claim up to $2,000 per qualifying child under the age of 17.
Unfortunately, many taxpayers miss out on this credit because they don’t check if they meet all the income thresholds.
2. Energy-Efficient Home Improvement Credit
Taxpayers who invest in energy-efficient home improvements like solar panels, energy-efficient windows, or insulation can qualify for the Energy Efficient Home Improvement Credit.
This credit, often overlooked, can provide substantial savings if you made any environmentally friendly updates to your home.
3. Earned Income Tax Credit (EITC)
The Earned Income Tax Credit (EITC) is one of the most frequently missed credits, particularly by lower-income taxpayers.
Families with children could receive up to $7,830 through this credit, depending on their income and number of dependents. Many eligible filers overlook it, not realizing they can benefit from this credit.
4. Medical Expense Deductions
Medical expenses that exceed 7.5% of your adjusted gross income (AGI) can be deducted. These deductions cover expenses like prescriptions, medical procedures, and even insurance premiums for the self-employed. Many individuals forget to track their medical costs, losing out on deductions that could add up quickly.
5. Retirement Savings Contributions Credit (Saver’s Credit)
Individuals contributing to retirement accounts like 401(k)s or IRAs may be eligible for the Retirement Savings Contributions Credit, also known as the Saver’s Credit.
This credit can reduce your tax liability by up to $2,000 for married couples, yet many fail to claim it because they don’t realize it applies to contributions to retirement plans.
6. State Sales Tax Deduction
For taxpayers living in states that don’t charge income tax, the state sales tax deduction is a great option. Many miss this deduction, choosing to take the state income tax deduction instead.
The sales tax deduction can be particularly valuable if you’ve made large purchases, such as a car or RV.
7. Dependent Care Credit
The Dependent Care Credit allows taxpayers to claim up to 35% of qualifying childcare expenses for children under the age of 13.
This includes costs associated with daycare, summer camps, and after-school programs. Despite its potential value, many families overlook this credit.
8. Health Savings Account (HSA) Contributions
Contributing to a Health Savings Account (HSA) is another often-overlooked opportunity for saving on taxes. HSA contributions are tax-deductible, and withdrawals for qualified medical expenses are tax-free.
Many individuals miss out on this deduction, even though it’s one of the most advantageous tax planning tools available.
9. Student Loan Interest Deduction
Taxpayers can deduct up to $2,500 in student loan interest paid during the year, even if someone else (like a parent) is making the payments.
This deduction can be helpful for those paying off student loans, but it’s frequently missed by taxpayers who aren’t aware they qualify.
10. Home Office Deduction
Self-employed individuals and remote workers who use part of their home exclusively for business can qualify for the Home Office Deduction.
This deduction allows for a portion of rent, utilities, and internet expenses to be claimed as business costs. Despite its validity, many people avoid it due to fear of audits.
| Tax Credit/Deduction | Amount | Eligibility |
|---|---|---|
| Child Tax Credit | Up to $2,000 per child | Parents of children under 17 |
| Energy-Efficient Home Improvement | Varies | Home improvements like solar panels or energy-efficient windows |
| Earned Income Tax Credit (EITC) | Up to $7,830 | Low to moderate-income earners with dependents |
| Medical Expense Deduction | Over 7.5% of AGI | Unreimbursed medical expenses exceeding 7.5% of AGI |
| Retirement Savings Contributions | Up to $2,000 (Saver’s Credit) | Contributions to 401(k) or IRA accounts |
| State Sales Tax Deduction | Up to $10,000 | Available in states with no income tax or large purchases |
| Dependent Care Credit | Up to $6,000 for 2+ children | Childcare expenses for children under 13 |
| Health Savings Account (HSA) | Varies | Contributions for those with high-deductible health plans (HDHPs) |
| Student Loan Interest Deduction | Up to $2,500 | Taxpayers paying student loan interest |
| Home Office Deduction | Varies | Self-employed individuals or remote workers using a part of their home for business |
By understanding and taking advantage of these often-overlooked tax credits and deductions, taxpayers can significantly reduce their tax liabilities.
Proper record-keeping, awareness of eligibility, and strategic planning are key to maximizing savings and ensuring that no valuable tax break is missed during tax season.
FAQs
What is the Earned Income Tax Credit (EITC)?
The EITC is a refundable tax credit aimed at helping low to moderate-income families. Eligible families with children could receive up to $7,830.
How do I qualify for the Child Tax Credit?
To qualify, parents must have a child under the age of 17 and meet specific income limits.
Can I claim a deduction for student loan interest?
Yes, up to $2,500 of student loan interest can be deducted, even if someone else is making the payments.