10 Tax Deductions You May Not Be Taking Advantage Of

Filing your taxes can be a lot of work, and depending on your situation, it can get quite complicated as regulations (and your situation) change from year to year. Lowering your tax bill as much as possible—or, better yet, earning as large a refund as possible—requires you to know what you’re entitled to and how to act on it.

Making sure you’re claiming all of the deductions you’re eligible for is one of the most effective ways to lower your tax liability.

Below, we take a closer look at what tax deductions are, how they work and how to claim them. We’ll also highlight some common tax deductions that can help you keep more money in your pocket—freeing it up to put toward your financial goals.

What are tax deductions?

A tax deduction is a rule within the tax code that allows you to, in some circumstances, reduce your taxable income by a certain amount. Tax deductions are also sometimes called “tax write offs”, because they allow you to “write off” a portion of your income.

When you claim a tax deduction, you’ll typically subtract the amount of the deduction from your taxable income for the year. The lower your taxable income, the less you’ll pay in taxes. And the more deductions you qualify for, the greater these savings will be.

Tax deduction vs. tax credit

You’ll also likely hear about tax credits, which are not the same thing as tax deductions. A tax deduction reduces your taxable income for the year, but a tax credit is a dollar-for-dollar reduction to your tax bill. This makes tax credits even more effective in saving money on taxes.

And the great thing is you don’t have to choose between tax credits and tax deductions. You can—and should—claim all tax credits and deductions you are eligible for.

How to claim tax deductions

When you file taxes each year, you’re given a choice of how to claim deductions. You can either claim the standard deduction, or you can itemize your deductions. If you claim the standard deduction, you’ll claim an amount determined by the IRS, regardless of what you qualify for. If you itemize your deductions, you’ll individually apply only deductions that you qualify for to your return.

Whether you choose to claim the standard deduction or itemize your deductions will ultimately come down to some math. Together with your tax advisor, you’ll add up your qualified expenses and compare that number to the standard deduction. Then depending on your situation and how the numbers shake out, you’ll choose the option that will offer the most savings.

List of tax deductions you may be eligible for

We’ve pulled together a list of some common deductions you should be aware of. Some of these deductions require you to itemize, but others can be claimed even if you take the standard deduction.

1. Student loan interest deduction

Eligibility: If you made payments on your student loans during the year, you could deduct the interest from your taxable income. This is true whether the loans are federal or private.

Amount: How much you can deduct depends on your income.

• Single filers with an income lower than $75,000 can deduct up to $2,500 in interest per year.

• This amount phases out for borrowers with an income between $75,000 and $95,000.

• If you earned more than $95,000 during the year, you cannot deduct your student loan interest.

Do I have to itemize to claim?: No

2. Mortgage interest deduction

Eligibility: If you own your home and are making mortgage payments, you can deduct any interest you’ve paid during the year.

Amount: How much you can deduct depends on when you purchased your home.

• If you bought your home before December 16, 2017, you can deduct all interest paid on a mortgage of up to $1 million (this amount drops to $500,000 for those who are married filing separately).

• If you bought your home after December 16, 2017, you can deduct interest paid on a mortgage of up to $750,000 ($375,000 for those married filing separately).

• If your mortgage is more than the limits above you can deduct a prorated portion of the interest

Do I have to itemize to claim?: Yes

3. State and local taxes (SALT) deduction

Eligibility: If you paid state income tax or other local taxes (such as property taxes) during the year, you can deduct a portion of this from your income.

Amount: The maximum SALT deduction is $10,000 per year, or $5,000 for those married filing separately.

Do I have to itemize to claim?: Yes

4. Charitable donation deduction

Eligibility: Did you donate to charity during the year? If so, choosing to itemize your deductions will allow you to write off these donations. Not all charitable organizations are tax exempt. To check the status of your donations, use the IRS tax exempt organization search tool.

Amount: In most cases, the maximum amount of charitable donations you can write off is 60 percent of your adjusted gross income (AGI).

Do I have to itemize to claim?: Yes

5. IRA contribution deduction

Eligibility: If you’ve contributed to a traditional IRA during the year, you may be able to write off those contributions up to a maximum of $6,500 for those under 50, or $7,500 for those 50 and older. (You cannot deduct contributions to a Roth IRA.)

Amount: How much you can deduct will depend on your income and whether you have access to a retirement plan through work.

Do I have to itemize to claim?: No

6. Health savings account (HSA) contributions deduction

Eligibility: Contributions to a health savings account (HSA) (if your health insurance plan allows it) are tax deductible.

Amount: How much you can deduct is tied to your contribution amount.

• If you have only individual health insurance coverage, you can contribute a maximum of $3,850 to an HSA each year ($4,850 if you are 55 or older).

• For family coverage, this limit jumps up to $7,750 ($8,750 if you are 55 or older).

Do I have to itemize to claim?: No

7. Capital loss deduction

Eligibility: If you sold an investment at a loss this year, you can use these losses to offset any capital gains you’ve realized or to reduce your taxable income. This fact forms the basis of tax-loss harvesting, a strategy many investors use to reduce their tax bill.

Amount: Capital losses first must be used to offset capital gains, any remaining capital losses then can be used to reduce your other income. The maximum capital loss you can use to reduce your other income in one year is $3,000 ($1,500 if married filing separately). If you have capital losses that cannot be used in the current year, you could carry the excess over into future years.

Do I have to itemize to claim?: No

8. Medical expenses deduction

Eligibility: If you had medical (or dental) expenses that were not reimbursed by your insurance or another party, you could deduct a portion of these expenses. The IRS provides a full list of qualified medical expenses here.

Amount: You can deduct the amount of unreimbursed medical expenses that exceed 7.5 percent of your adjusted gross income (AGI).

Do I have to itemize to claim?: Yes

9. Teacher expenses deduction

Eligibility: Educators who purchased classroom materials (such as books, supplies, computers, software and equipment) can deduct these expenses from their income.

Amount: Educators can deduct up to $300 of eligible expenses. In instances where both spouses are educators, this increases to $600 if they file jointly.

Do I have to itemize to claim?: No

10. Self-employed expenses deduction

Eligibility: Individuals who are self-employed (like freelancers, gig workers, consultants and contractors) can deduct many of the expenses related to running their business. This can include, but is not limited to, general business expenses, a home office, business use of your vehicle, utilities and more.

Amount: What you’re able to deduct, and how much, depends on the type of expense. Working with a tax professional can help ensure you take advantage of all the tax breaks available to you as someone who is self-employed.

Do I have to itemize to claim?: No

The IRS has forms and resources with information about the various deductions, but there’s a lot there to sift through. If you’re unsure what you might qualify for, talk with your tax professional to get personalized advice about your situation.

Getting the most out of tax deductions

You’ve worked hard for your income, so you want to make sure you’re not paying more than you need to in taxes. Having a good understanding of deductions and credits—or working with someone who does—is one of the best ways to make sure you accurately file your taxes.

A tax professional can advise you on which deductions you may (or may not be) eligible to claim and may even be able to recommend advanced tax strategies—such as bunching itemized deductions—to truly maximize your tax savings.

This article is not intended as legal or tax advice. Northwestern Mutual and its financial representatives do not give legal or tax advice. Taxpayers should seek advice regarding their particular circumstances from an independent legal, accounting or tax adviser.