The Most Overlooked Tax Deductions
Many taxpayers miss legitimate deductions that can reduce taxable income and lower tax bills. Below is a concise guide to commonly overlooked deductions, who may qualify, and what records to keep. Always confirm eligibility with current tax law or a tax professional, since rules and limits can change.
State sales taxes
Who: Taxpayers in states without income tax or those who paid large purchases (e.g., vehicle, boat).
What: Option to deduct state and local sales taxes instead of state income taxes on Schedule A.
Records: Receipts for major purchases; IRS sales tax tables plus receipts for significant items.
Job search expenses (in certain years/states)
Who: Unreimbursed job seekers in the same line of work.
What: Historically deductible as miscellaneous itemized deductions subject to 2% AGI floor; availability depends on current tax law and whether state returns allow it.
Records: Job search costs (resume services, travel, placement agency fees), proof that job was in same field.
Educator expenses
Who: Eligible K–12 teachers and certain school staff.
What: Above-the-line deduction for classroom supplies, professional development, and protective gear.
Records: Receipts for supplies, course fees, and statements from employers confirming eligibility.
Student loan interest paid by someone else
Who: Parents or others who paid a student’s loan on behalf of the borrower.
What: If the borrower reports the interest as income, the borrower—not the payer—may be able to deduct the interest. Some arrangements can shift who claims the deduction; consult a tax advisor.
Records: Form 1098-E, canceled checks or payment confirmations.
Medical expenses many forget
Who: Taxpayers with large unreimbursed medical costs.
What: Medical expenses exceeding the AGI threshold (subject to change) can be deductible, including travel for medical care, certain home modifications, and special equipment.
Records: Medical bills, mileage logs, receipts for equipment and home modifications, and explanation of medical necessity.
State and local tax refunds reported incorrectly
Who: Taxpayers who itemized in prior years.
What: Need to determine whether prior year state refunds were taxed; failing to account for the tax benefit rule can create errors.
Records: Prior year returns, Forms 1099-G.
Out-of-pocket charitable expenses
Who: Donors who incur expenses while doing volunteer work for qualified charities.
What: Noncash expenses such as mileage, uniforms, supplies, and lodging for charity work may be deductible.
Records: Receipts, mileage logs, written acknowledgements from charities.
Home office deduction
Who: Self-employed individuals or employees (rules differ—employee deduction limited under current law).
What: Deduction for exclusive, regularly used space for business. Simplified and regular methods exist.
Records: Floor plans, square footage calculations, home-related bills apportioned for business use.
Business use of vehicle beyond standard mileage
Who: Self-employed taxpayers and business owners who use vehicles for business.
What: Some miss depreciation, actual expenses, and costs for vehicles used partly for business (especially for heavy SUVs and trucks with Section 179 or bonus depreciation options).
Records: Mileage log, receipts for repairs, insurance, registration, and purchase documents.
Tax prep fees and financial advice (where allowed)
Who: Some small business owners and investors.
What: Costs related to producing or collecting taxable income (some tax prep fees may be deductible on business returns or as an investment expense where rules permit).
Records: Invoices, receipts, and allocation between personal and business services.
Miscellaneous employee business expenses (for certain categories)
Who: Armed forces reservists, qualified performing artists, fee-basis state or local government officials, and employees with impairment-related work expenses.
What: These categories still allow deductions for unreimbursed employee expenses on federal returns.
Records: Receipts and employer statements of reimbursement policies.
Bad debts and worthless securities
Who: Small business owners, lenders, and investors.
What: Debts that become uncollectible and worthless securities may be deductible if properly documented as genuine losses.
Records: Loan agreements, collection efforts, financial statements, and broker records showing market value decline.
Casualty and theft losses (in jurisdictions or years when allowed)
Who: Taxpayers affected by disasters, theft, or accidents.
What: Deductible when losses exceed thresholds and where law permits (federal deductions limited in many years; state returns may differ).
Records: Police reports, insurance claims, receipts for repairs, and before-and-after photos.
