Note: Netspend is not a tax advisor or CPA. The knowledge in this post is general information and should not replace the advice of a tax professional. For more information, please reach out to a tax professional in your area. Link (https://www.irs.gov/tax-professionals/choosing-a-tax-professional)
No one wants to see an eye-watering tax bill at the end of the year. But you can reduce the amount you owe if you claim tax-deductible expenses. However, there are strict criteria set out by the IRS that limit what you can and can't claim as tax deductions.
In the run-up to tax season, many people are left pondering what can and can't be claimed on tax returns as deductible expenses. While it's true you can't claim for everything; there could be some allowable tax deductions you don't expect. In fact, you could be leaving money on the table if you don't claim for them when you're eligible.
So before you submit your next tax return, keep reading to see if one of the five unexpected tax deductions below applies to you. By claiming these tax deductions, you could potentially save hundreds of dollars on your tax return or even more.
Tax Deductions You May Qualify For
1. Home improvements (once you sell your home)
While on a surface level, home improvements are not tax deductible, you can still save money on taxes when you sell your home.
The cost of home improvements, such as additions, brickwork, a new kitchen, and so on, are added to the "tax basis of your home. This is the amount of investment you hold in your home. The greater this number, the less "profit" you will technically make when you sell your home.
So keep this in mind if you're planning any home improvements. You might not be able to benefit from tax-deductible home improvements now, but whenever you sell, you might save a great deal on your tax bill.
Unfortunately, the IRS states that the same rules do not apply when it comes to home repairs that may be necessary for keeping your home in good condition but don't add value to the property. That is unless you are using part of your home as an office as this affects the potential gain you get when you sell your home. (However, this must be considered a tax-deductible office.)
2. Sales tax
You may be able to reduce your tax liability when deducting either state and local sales taxes or state and local income taxes (but not together).
Currently, the total amount you can claim as an individual is $10,000, or $5,000 if married but filing separately. This amount covers any deductions of state and local income taxes, sales taxes, and property taxes. Together, they cannot exceed the limits above.
Those who will benefit the most from this rule are those who:
Live in states with no income tax
Made large purchases or invested in renovations
Can lower their tax bill with itemized deductions rather than standard ones
3. Babysitters or childcare
If you rely on babysitters to care for your children while you're at work, it can quickly add up and become a major household expense.
However, in some cases, you could receive a tax credit to cover the cost of a babysitter if you are either working, looking for work, or are a full-time student. To be eligible for the tax credit, the reason for using a babysitter must be for work or education rather than for leisure. For example, you could claim for childcare while you're at work all day, but you can't claim for hiring a babysitter to watch your children while you go for an evening meal out.
To deduct this, you will first need to meet some requirements. Your can't be a relative (if under 18) or someone listed as a dependent on your taxes. The child receiving care must also be under the age of 13 or classified as a person with disabilities.
4. The Lifetime Learning Credit
Another deduction you might be able to claim against your tax bill is money spent on education, which can help lessen the financial burden of undertaking higher education.
The Lifetime Learning Credit (LLC) is a tax deduction for those enrolled in an eligible educational institution. It helps undergraduates, graduates, and those undertaking courses to improve job skills or professional development.
This credit is worth up to $2,000 per tax return you submit. To qualify for the LLC, you must meet the following criteria:
The student must be enrolled at an eligible educational institution
The higher education course must be to get a degree, other recognized qualifications, or to improve job skills
They must be enrolled for at least one academic period in the tax year
They must pay qualified education expenses
The student must be listed on your tax return
This criteria can apply either to yourself, your spouse or dependents in your household. So if you're not currently in education, but your spouse or dependent is, you may be able to claim for the LLC.
5. Weight-loss programs for medical conditions
Another unexpected expense you might be able to claim is for weight-loss programs. However, this tax deduction only applies in certain scenarios. You will need to be diagnosed with a specific medical condition, such as hypertension or heart disease.
A common misunderstanding is that you can claim your gym membership as a medical expense. However, the IRS specifies that you can only claim for fees associated with weight-loss programs specifically.
The fees you can claim for can include memberships to weight reduction groups or separate weight loss activities at your gym that you have to pay extra for. But they cannot be your general gym membership costs as they are not solely considered a medical expense.
Speak with a tax professional
As with anything tax related, the best thing you can do is speak with a tax professional who can give you the most up-to-date, specialized advice for your circumstances. The above examples tend to only apply in specific scenarios, so be sure to ask for advice on whether you're eligible before trying to claim.
Also, be sure to ask them if there are any other expenses you could be missing out on, so you're claiming for as many deductions as you can. Many expenses may be small and seem insignificant, but when combined, they could add up to a portion of your tax bill that you don't have to pay.
By leaving no stone unturned, you could potentially shave hundreds or thousands of dollars off your next tax bill.