12 Tax Write-Offs To Claim On Your Tax Return

Mortgage Interest and Points

In many cases, homeowners will be able to deduct any mortgage interest or points paid during the tax year. In some cases, people with expensive homes may not be able to deduct the total amount of interest paid on their mortgage — and if you own more than two homes, you may only be able to deduct the interest paid on your primary home and one other property.

Property Taxes

If you paid state or local property tax on a home, boat, car or other property during the past year, you may be able to deduct those payments. If your property taxes exceed the annual federal limit applied to combined state and local income, general sales, and property tax deductions, you may only be able to deduct up to the limit allowed.

Charitable Gifts

If you give money, property or physical items to a qualified charitable organization, you may be able to deduct the cost or value on your taxes. You may also be able to deduct any expenses related to volunteering for a qualified charity or non-profit. So make sure you keep track of those expenses throughout the year.

Medical Expenses

If you pay out-of-pocket medical expenses, including dental expenses, you may be able to deduct a percentage of these expenses on your taxes. As of this writing, the IRS allows you to deduct the amount of combined medical expenses that exceed 7.5 percent of your Adjusted Gross Income (AGI). If you are unsure whether your medical expenses qualify, consult a tax professional or use a tax prep software that can help you with the calculations.

Student Loan Interest

As of this writing, you may be able to deduct up to $2,500 in interest on your student loans, as long as that interest was paid during the applicable tax year. The amount of student loan interest you can deduct is partially dependent on income, which means that people who earn higher incomes may not be able to deduct the full $2,500.

Theft

If an item you own was stolen, you may be able to deduct the adjusted value of that item from your taxes. But if the item was returned or you were able to file a claim for reimbursement of your costs — even if you have not yet received that reimbursement — you won’t be able to deduct the value of the theft.

Casualty and Disaster

If your home or property is damaged due to disaster, you may be able to deduct the adjusted value of your losses. You will need to deduct any salvage value, as well as the value of any insurance claim reimbursement you expect to receive — even if you have not yet received the reimbursement. If your loss is covered by insurance and you do not file a claim for reimbursement, you will not be able to deduct the loss on your taxes.

State and Local Tax

If you pay state and local taxes, you may be able to deduct these payments from your federal tax return. If these taxes exceed the annual federal limit applied to combined state and local income, general sales, and property tax deductions, you may only be able to deduct up to the limit allowed.

Qualified Business Expenses

Many freelancers, sole proprietors and small business owners can deduct qualified business expenses. These expenses include everything from office supplies to business travel, not to mention professional development, training and certification. If your business includes a home office, you may be able to take a home office deduction — and you may also be able to deduct a portion of your utility, internet and phone bills.

It’s a good idea to work with a CPA to determine which business expenses qualify as tax deductions, especially if you are just getting started as a small business owner or freelancer. It’s also important to keep good records of every expense, not only so you can maximize your business deductions but also to protect your business in case you get audited.

Self-Employed Health Insurance Premiums

If you are self-employed, you may be able to deduct some or all of your health insurance premium payments. If you are eligible for tax credits on your health insurance premiums, calculating the tax-deductible portion of your premium payments can become somewhat complicated. So make sure you work with a tax professional or tax prep software program that can ensure you’re claiming the correct tax write-off.

One Half of Self-Employment Tax

Unlike traditional employees, who share the costs of Social Security and Medicare taxes with their employers, self-employed people are responsible for making both halves of these important payments. Since this self-employment tax is higher than what many employees pay, the federal government allows the self-employed to deduct half of this tax on their federal tax returns.

Traditional IRA and HSA Contributions

If you make contributions to a Traditional IRA or HSA, you may be able to deduct some or all of those contributions from your taxes. People who also make contributions to an employer-sponsored retirement plan, such as a 401(k) plan, may see their deductions limited, particularly if they exceed a certain income level. You cannot deduct contributions made to a Roth IRA, since the Roth IRA comes with its own tax advantages.

Self-employed people have the ability to deduct additional types of IRA contributions, including SIMPLE and SEP IRA contributions. But if you exceed certain income levels, you may also see their deductions limited or capped.

What Is a Tax Write-Off?

A tax write-off is any expense that legally and legitimately reduces your taxable income. The terms “tax write-off” and “tax deduction” mean the same thing, although the phrase “write-off” originated in the business world because it referred to the process of recording tax-deductible expenses in a business accounting system. Today most business owners still refer to deductions as write-offs, but the phrase has started to creep into the individual tax lexicon as well.

How Do Tax Write-Offs Work?

There are several opportunities within the tax filing process to categorize and deduct tax write-offs, although some of these expenses may require additional forms or schedules. The process of categorizing and subtracting these tax write-offs is known as itemizing your deductions.

Many people never have to think about tax write-offs because they choose to take the Standard Deduction. If the amount of the Standard Deduction is higher than the amount of write-offs you can claim on your taxes — as is often the case for most households — you’ll save more money on your taxes by taking the Standard Deduction.

Tax Credit vs. Deduction

A tax deduction is subtracted from your taxable income, reducing the amount of money subject to tax. A tax credit, on the other hand, is subtracted from the tax you owe, which means tax credits can be much more valuable than tax deductions.

Tips for Writing Off Expenses

If you want to claim as many tax write-offs as possible, you need to be prepared. Here are four tips to help you write off expenses and maximize your tax refund.

Plan Ahead

Savvy taxpayers match expenses to income. If you know you are going to have a higher-than-average earnings year, for example, you can balance out some of the increased tax burden by purchasing tax-deductible items such as office supplies, business travel or professional development.

While these kinds of tax deductions apply mostly to freelancers and small business owners, traditional employees can also plan ahead. If you get a raise this year, for example, you may want to put some of that extra income toward tax-deductible home renovations.

Keep Accurate Records

If you want to maximize your deductions with minimal effort, make sure you keep accurate records. Use an app, spreadsheet or notebook to track every potential tax deduction as soon as it takes place, whether you’re traveling for business or paying your monthly smartphone bill. You can’t deduct the purchases you forgot about making, and if you track your expenses by category, tax time becomes even easier.

Save Your Receipts

As you track your tax-deductible expenses, make sure to save your receipts. Some people keep track of everything on paper, printing out electronic receipts and putting them into a folder system sorted by year and category. Others keep electronic records, photographing any paper receipts they receive at brick-and-mortar stores and adding them to a computerized filing system. Many popular accounting software programs also have receipt-tracking functionality, so make sure you take advantage of it!

Work With a Tax Professional

Some people may want to work with a tax professional to get the most out of their potential deductions. This is especially important for freelancers, small business owners and anyone whose taxes require numerous forms and schedules in addition to the standard 1040. It’s also a good idea for people who aren’t sure how many tax-deductible expenses they have, as well as people who may have recently moved states and are getting used to a new state tax system.

“If you’re uncertain about which tax write-offs you’re entitled to claim, you can always consult a CPA or tax professional. However, many of today’s best tax software programs are well equipped to help you answer this question, so you may want to start there and see if you get the information you need!”

— Nicole Dieker