Nobody wants to send the IRS a huge check at the end of the year. Instead, they want as high of a tax refund as possible so they can put some money into their savings, pay off debt, or go on a well-deserved vacation.
If taxpayers want to ensure they have a better chance of receiving a refund rather than owing money, they need to take as many applicable income tax credits and deductions as they can. However, they may not be aware of everything they can claim.
If you’re still working on your taxes for 2020, here are 12 of the most overlooked tax credits and deductions that you may be able to take.
1. Self-Employment Tax
Are you self-employed? Then you can take a deduction for one-half of your self-employment tax rate, which is 15.3%. You will need to pay the self-employment tax as well as file Schedule SE (Form 1040 or 1040-SR) if your net earnings from self-employment totaled $400 or more.
2. Charitable Donations
If you gave any money to a charity in 2020, then you can deduct your donation from your taxes. Note that you cannot deduct time you spent volunteering. However, you can write off any travel you did for a charity by claiming 14 cents per mile for your driving and tolls and parking you had to pay. Just make sure you keep any receipts so that you have proof of your donations.
3. Home Office
In 2020, many people switched to remote work. Whether you’re self-employed or you have a full-time job If you were self-employed this past year, you can take a deduction for your home office. To make it easier, you can deduct $5 per square foot of your home that you utilize for business purposes. Keep in mind that the limit is 300 square feet, which would equal $1,500. If your home office is larger than 300 square feet, then you could do an itemized deduction instead.
4. The Lifetime Learning Credit
With this credit, you can claim up to $2,000 on your tax return for your higher education expenses, even if you aren’t in a degree program. Additionally, you can claim school supplies and expenses such as lab fees and books for your classes.
5. The American Opportunity Tax Credit
If you’re paying for your higher education, then you can take advantage of the AOTC as long as you’re in a degree program and going at least on a half-time basis. If you’re paying for your children’s education and you list them as a dependent on your tax return, then you can claim the AOTC. You can take a tax credit of up to $2,500 for your (or your children’s) tuition, fees, and supplies, such as books.
6. Student Loan Interest
Did you take out loans to pay for your higher education expenses? Did you take out loans for your children’s education? Then you can claim a tax deduction for student loan interest. The maximum is $2,500.
7. Child and Dependent Care Credit
If your children are younger than 13 years of age, and you enrolled them in a daycare, before and after school program, or day camp so that you were able to work, then you may be able to claim the Child and Dependent Care Credit. The total expenses that you can use to calculate your credit cannot exceed $3,000 for one qualifying individual, or $6,000 for two or more qualifying individuals.
8. Mortgage Interest
Do you own a home and pay a mortgage? Then you will be eligible for a mortgage interest tax deduction. You’re allowed to deduct interest on up to $750,000 of your mortgage debt. There are a few exceptions to the $750,000 rule, though. If you took out a mortgage before October 13, 1987, you can deduct all of your interest. If you purchased your home after October 13, 1987 but before December 16, 2017, your limit is $1 million. If a home was sold before April 1, 2018, you’re eligible for the $1 million limit if you entered into a binding contract before December 15, 2017 to close before January 1, 2018 – and your home was purchased before April 1, 2018.
9. Medical Expenses
If you had a lot of medical expenses to pay in 2020, you could deduct them if they exceed 7.5% of your adjusted gross income. You can also deduct 17 cents per mile driven if you were driving for medical purposes (i.e. to and from doctor’s appointments).
10. SALT Deduction
If you live in an expensive state, you may be able to claim a SALT, or state and local tax deduction, on your tax return. There is currently a $10,000 cap on that deduction.
11. Other Dependent Credit
You may pay and care for someone other than a child, such as a relative with special needs. You’ll be able to take an Other Dependent tax credit, which maxes out at $500 per dependent. Your dependent must be 17 or older to qualify.
12. Gambling Losses
If you gamble, then you can deduct your losses from your return as long as you itemize your deductions on Schedule A and record your winnings and losses. Your losses cannot exceed the gambling income that you report.
Filing Your Taxes With TaxAct
When you file with TaxAct, you can easily claim eligible deductions and credits on your return. And if you file with Xpert Help, you can gain access to CPAs and tax experts who will ensure you claim all of your applicable deductions and credits. Learn more about our free and paid plans and get started with your 2020 tax return today.