What Items Are Tax Deductible?

Understanding which expenses are tax deductible can significantly impact an individual’s financial planning and tax liability. Being aware of eligible deductions maximizes potential savings and ensures compliance with tax regulations, helping to avoid penalties or audits.

This guide explores various categories of tax-deductible items individuals may claim when filing taxes.

Medical and Dental Costs

Taxpayers can deduct qualified medical and dental expenses exceeding 7.5% of their adjusted gross income (AGI). Eligible costs include payments for diagnosis, treatment, or prevention of disease, such as fees to medical practitioners, prescription medications, and necessary medical equipment like wheelchairs. Travel expenses related to medical care, such as mileage or public transportation fares, are also deductible if properly documented.

Insurance premiums for policies covering medical care are deductible, except for employer-sponsored plans typically paid with pre-tax dollars. Cosmetic procedures are not deductible unless deemed medically necessary.

Charitable Donations

Charitable donations provide a way to achieve tax deductions. Taxpayers who itemize can deduct contributions to IRS-recognized 501(c)(3) organizations, including religious, charitable, educational, scientific, or literary entities. Cash contributions are limited to 60% of AGI, while donations of appreciated assets are capped at 30% of AGI. Accurate records, including receipts and acknowledgment letters, are crucial for substantiation.

For donations over $250, a written acknowledgment from the charity is required, specifying the donation amount and any goods or services received in return.

Mortgage or Loan Interest

Homeowners can deduct interest on mortgage debt up to $750,000 for married couples filing jointly and $375,000 for single filers, applicable to loans incurred after December 15, 2017. Interest on home equity loans is deductible if the funds are used to buy, build, or improve the home, with documentation needed to support claims.

Interest deductions are limited to primary and secondary residences. For investment properties, interest is deducted as a business expense.

Certain Education Fees

The Lifetime Learning Credit offers up to $2,000 per tax return for qualified education expenses, covering undergraduate, postgraduate, and job skill improvement courses. The credit phases out for single filers with a MAGI over $59,000 and is unavailable above $69,000. For joint filers, the phase-out begins at $118,000 and ends at $138,000. The educational institution must participate in a U.S. Department of Education student aid program.

Home Office Expenses

Taxpayers working from home can deduct home office expenses if the space is used exclusively and regularly for business. It must serve as the principal place of business or where significant administrative activities occur. The simplified deduction method allows $5 per square foot, up to 300 square feet, while the regular method involves calculating actual expenses like mortgage interest and utilities. Proper documentation is necessary to support claims.

Retirement Contributions

Contributions to traditional IRAs are deductible up to $6,500 for 2024, or $7,500 for those aged 50 or older, subject to income limits. Employer-sponsored plans like 401(k)s have a contribution limit of $22,500, or $30,000 for those aged 50 or older. Self-employed individuals can use SEP IRAs or Solo 401(k)s, allowing contributions of up to 25% of net earnings or $66,000, whichever is lower.

State and Local Taxes

The SALT deduction is capped at $10,000 for married couples filing jointly and $5,000 for single filers, covering property taxes and either state income or sales taxes. Taxpayers in states without income tax may benefit from deducting sales taxes. Timing payments, such as prepaying property taxes, can optimize deductions, but caution is needed due to the Alternative Minimum Tax. Documentation, including receipts and tax bills, is essential to support claims.