Every year, millions of taxpayers leave money on the table simply because they’re unaware of valuable tax breaks available to them. The tax code is filled with deductions and credits that can save you hundreds or even thousands of dollars, but many of these opportunities fly under the radar for most people. Whether you’re filing your own taxes or working with a professional, knowing these hidden gems can make a significant difference in your refund or tax liability.
In this article, we’ll explore ten commonly overlooked tax breaks that could be relevant to your situation. We’ll break down each opportunity with clear explanations, examples, and actionable steps to help you claim these benefits. Remember, tax planning isn’t just for the wealthy—it’s for anyone who wants to keep more of what they earn. Let’s dive into these hidden tax savings opportunities that might be waiting for you.
1. State Sales Tax Deduction
If you live in one of the seven states without a state income tax—Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, or Wyoming—you might be missing out on a valuable deduction. The IRS allows you to deduct either state income taxes or state sales taxes, whichever benefits you more. For residents of these no-income-tax states, claiming the sales tax deduction often makes more sense.
The IRS provides tables that estimate your sales tax based on your income and family size, but you can also track your actual sales tax payments throughout the year. This includes taxes paid on big-ticket items like vehicles, boats, or home renovations. For example, if you purchased a new car and paid $2,000 in sales tax, you can add that to your deduction.
One personal insight I’ve gained from working with taxpayers is that many people in these states forget about this option, especially if they’ve always assumed the income tax deduction was the only choice. If you’re in this situation, consider using the IRS Sales Tax Calculator to estimate your potential deduction and compare it with any other state taxes you might have paid.
2. Reinvested Dividends
When you own stocks or mutual funds that pay dividends, those dividends are often automatically reinvested to purchase more shares. What many people don’t realize is that these reinvested dividends increase your tax basis in the investment. This detail becomes crucial when you eventually sell the shares.
Here’s how it works: Let’s say you initially invested $10,000 in a mutual fund. Over time, you receive $2,000 in dividends that are automatically reinvested. When you sell the shares, your tax basis isn’t just the original $10,000—it’s $12,000. This means you’ll pay capital gains tax on a smaller amount, potentially saving you hundreds of dollars.
I’ve seen cases where people sold investments after many years and were shocked by the capital gains tax bill because they forgot to account for all those reinvested dividends. The key is to keep meticulous records of every dividend reinvestment. Most brokerage firms provide annual statements that show these transactions, but it’s wise to maintain your own records as well.
3. Out-of-Pocket Charitable Contributions
We all know that charitable donations can be deducted, but many people don’t realize that small out-of-pocket expenses related to charity work also qualify. These include ingredients for meals you prepare for a shelter, stamps and envelopes for fundraising mailings, and even mileage for volunteer work (14 cents per mile for charitable organizations).
For example, if you regularly volunteer at your local food bank and drive there twice a week, those miles add up. Similarly, if you buy supplies for a charity auction or contribute materials for a community project, these expenses can be deducted.
I met people who volunteered as a scout leader and had been paying for many of the troop’s activities out of pocket without realizing they could deduct these expenses. By tracking these small costs throughout the year, they were able to add several hundred dollars to their itemized deductions. The important thing is to document everything—keep receipts, maintain a mileage log, and note the purpose of each expense.
4. Student Loan Interest Deduction
If you’re paying off student loans, you might be eligible to deduct up to $2,500 of the interest you’ve paid, even if you don’t itemize your deductions. This above-the-line deduction is available to single filers with adjusted gross income (AGI) under $95,000 and married couples filing jointly with AGI under $195,000.
What many people don’t realize is that you can claim this deduction even if you’re not the one who took out the loan. For example, if your parents took out a loan to pay for your education and you’re now making the payments, you might still qualify to deduct the interest.
I’ve encountered situations where graduates stopped claiming this deduction once their parents paid off part of the loan, not realizing they could still benefit if they were making the payments. Additionally, if you’re married but file separately, you might still qualify under certain circumstances. The key is to ensure you’re not claimed as a dependent on someone else’s return and that you used the loan exclusively for qualified education expenses.
5. Retirement Savings Contribution Tax Credit (Saver’s Credit)
This valuable credit is often overlooked because many people assume tax benefits for retirement savings only apply to high-income earners. In reality, the Saver’s Credit is specifically designed to help lower- and middle-income taxpayers boost their retirement savings while reducing their tax liability.
The credit is worth 50%, 20%, or 10% of your contribution to a retirement account, depending on your income level. For 2023, if you’re a single filer with an AGI of $43,000 or less, or a married couple filing jointly with an AGI of $64,500 or less, you may qualify. The maximum credit amount is $1,000 for single filers and $2,000 for married couples filing jointly.
To claim this credit, you need to contribute to an IRA, 401(k), or other eligible retirement plan and file Form 8880 with your tax return. I’ve seen taxpayers miss out on this credit because they assumed their contribution wasn’t significant enough or they didn’t realize they needed to file the additional form. Even a small contribution can make a difference—contributing just $1,000 could earn you a $500 credit if you qualify for the 50% rate.
6. Tax Deduction for Jury Pay
This is one of those deductions that many people never consider because it applies to a relatively specific situation. If you receive jury duty pay from the court but are required to surrender it to your employer (who continues to pay your regular salary while you serve), you can deduct the amount you gave back to your employer.
To claim this deduction, you’ll need to report the jury duty pay as income on your tax return and then deduct the amount you returned to your employer. This ensures you’re not being taxed on money you never actually kept.
7. Child and Dependent Care Credit
This credit helps offset the costs of care that allows you to work or look for work. While many people know about this credit, they might not realize how broadly it can apply. Qualifying expenses include payments to babysitters, preschool tuition, day camp fees, and even payments to non-related caregivers who come to your home.
The credit is worth between 20% and 35% of your qualifying expenses, depending on your income, with a maximum of $3,000 for one dependent or $6,000 for two or more dependents. To claim it, you’ll need to provide the caregiver’s tax identification number and complete Form 2441.
8. State and Local Tax (SALT) Deduction
While the Tax Cuts and Jobs Act of 2017 placed a $10,000 cap on the SALT deduction, it’s still a valuable break for many taxpayers, especially those in high-tax states. The deduction covers state and local income taxes, property taxes, personal property taxes, and even some sales taxes.
Strategically timing your tax payments can help you maximize this deduction. For example, if you expect to be in a higher tax bracket in the coming year, you might consider prepaying some state taxes before year-end to bunch deductions into the current year.
I’ve worked with taxpayers who were surprised to learn they could deduct not just their property taxes but also personal property taxes on items like boats or vehicles. Keeping detailed records of all your state and local tax payments throughout the year is essential to ensuring you claim every dollar you’re entitled to.
9. Unusual Medical-Related Deductions
Medical expenses can add up quickly, and while most people know they can deduct expenses that exceed 7.5% of their adjusted gross income, many don’t realize how broadly this category can apply. Beyond typical doctor visits and prescription medications, you might be able to deduct expenses like:
- Service animal costs, including training, food, and veterinary care
- Special education programs or tutoring for learning disabilities
- Weight loss programs prescribed by a physician to treat a specific medical condition
- Travel expenses to and from medical treatments
- Modifications to your home for medical necessity, like wheelchair ramps
The key with medical deductions is documentation. Keep detailed records of all medical expenses, including receipts, doctor’s recommendations, and explanations of how each expense relates to your medical condition.
10. Business-Related Deductions
If you’re self-employed or run a small business, there are numerous deductions you might be missing that could significantly reduce your tax burden. These include:
- Capital allowances for business assets like computers, furniture, and vehicles
- Compensation paid to family members who work in your business
- Home office expenses if you regularly and exclusively use part of your home for business
- Professional development costs, including books, courses, and conferences
- Interest on business loans
- Business-related travel and entertainment expenses
I’ve seen small business owners miss out on thousands of dollars in deductions because they didn’t realize certain expenses qualified. For example, the cost of a new computer purchased for business use can often be fully deducted in the year of purchase rather than being depreciated over several years.
The important thing is to maintain thorough records of all business expenses throughout the year. Consider using accounting software to track these deductions and consult with a tax professional who specializes in small business taxes to ensure you’re maximizing every opportunity.
Conclusion
Tax planning isn’t a one-size-fits-all proposition. Your unique financial situation determines which deductions and credits will benefit you most. By becoming familiar with these often-overlooked tax breaks, you can take control of your tax strategy and potentially save hundreds or even thousands of dollars each year.
Remember that documentation is your best friend when it comes to tax deductions. Keep receipts, maintain logs, and track all relevant expenses throughout the year rather than trying to reconstruct them at tax time. If you’re unsure about whether a particular expense qualifies, consult the IRS guidelines or seek advice from a qualified tax professional.
The tax code is complex, but with a little knowledge and organization, you can turn that complexity into opportunity. Start implementing these strategies today to keep more of what you earn.
