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Don’t Pay More in Taxes Than You Should: These Are the Most Overlooked Tax Deductions

Don’t Pay More in Taxes Than You Should: These Are the Most Overlooked Tax Deductions

| March 26, 2024

With tax season upon us, the goal of every taxpayer is to avoid overpaying in taxes. Yet navigating the ever-changing tax code can be challenging and confusing, making it easy to miss potential deductions specific to your financial situation and plan. To help you make the most of your tax return, here are six often overlooked tax deductions that could help you keep more of your hard-earned money.

Out-of-Pocket Charitable Contributions

There’s more to charitable deductions than many people realize. Not only are the big-ticket contributions deductible, but the out-of-pocket expenses paid while volunteering or donating your time to accredited charitable activities are also deductible too. 

For instance, if you participate in charitable activities that involve up-front expenses, these may be deductible on your tax return. Whether you purchase canned goods for a food drive or supplies for a local school fundraiser, your contributions are deductible. If you drove your car for charitable causes in 2023, you can also deduct 14 cents per mile and the cost of tolls. You must keep a detailed log and receipts for these types of charitable giving.

Remember to keep your receipts and obtain verification for any contributions over $250 to make sure all your bases are covered. Every tax situation is different so always speak to your tax advisor about the possibility of these deductions in preparing your data for your 2023 tax filings.

Self-Employment Social Security & Medicare Tax Deduction

For self-employed individuals, you can deduct a portion of the Social Security and Medicare tax you pay. Since self-employed individuals are required to pay both the employer and employee portion of Social Security and Medicare tax, there is a tax deduction available for the portion considered paid by the “employer.” 

The full tax is 15.3% of net earnings, but you can write off 7.65% using this deduction. The best part is that this is an above-the-line deduction, which means it can be used in conjunction with the standard deduction.

Student Loan Interest

Another above-the-line deduction that many people forget about is the student loan interest deduction. This deduction allows the borrower to deduct up to $2,500 of student loan interest paid over the course of the year, even if the loan is repaid by someone else. Depending on your total income and the filing status you are using to file your return, this may be another deduction to take.

Here’s an example. If you took out a Parent PLUS Loan for your child to attend school and they have been the person making the payments, you can still deduct whatever interest was paid on your tax return since you are technically the borrower. In this case, the IRS assumes that your child gave you the money, and then you paid the debt yourself, thus allowing the borrower (not the payor) to receive the tax deduction.

Many people may still not qualify due to the federal pause of student loan payments, which ended June 30, 2023 with payments not resuming until October 2023. If you have consistently made payments or paid down the interest portion on any of your student loans in 2023, make sure to claim this deduction if your modified adjusted gross income (MAGI) amount reaches the annual limit for your filing status.

Medicare Premiums for Self-Employed Individuals

If you’re over the age of 65, enrolled in Medicare, and self-employed, then you can deduct some or all the premiums paid for Medicare Part B and Part D as well as the cost of any supplemental policies or the Medicare Advantage plan.

The good news is this is an above-the-line deduction, so you do not have to itemize and the premium costs will not be subject to the 7.5% AGI floor that typically applies to medical expenses. Note that you are only eligible for this deduction if you are not also covered by an employer health plan, whether that be through a second job or through your spouse’s employer.

The even better news is that even if you are not 65 or enrolled in Medicare, you can still deduct the cost of healthcare (and long-term care) premiums if you are self-employed and not covered by an employer health plan.

State Income Tax Refund

Many people automatically assume they are required to report a state income tax refund as income on their federal tax return. But this is not actually the case. If you did not itemize your deductions to claim the state income tax paid, then any refund received is not considered income at the federal level. In some situations, even if you do itemize your deductions, your state tax refund may still not be taxable depending on certain factors.

Since most taxpayers claim the standard deduction and do not claim state and local tax deductions, the majority of those who receive a state income tax deduction do not need to report it on their Form 1040. Keep this in mind as you file your taxes this year, and don’t mistakenly report more income than is rightfully taxable.

Moving & Travel Expenses for Military Personnel

When the Tax Cuts and Jobs Act was signed in 2017, many taxpayers lost the ability to deduct moving expenses on their tax returns. But this deduction is still available for active-duty military personnel. If you or your spouse were an active-duty military member who relocated in 2023 and you did not receive a reimbursement from the government for your move, you will be able to deduct a portion of move-related expenses including the cost of travel, lodging, moving supplies, services, and shipping.

What’s more, military reservists and National Guard members are also able to deduct the cost of work-related travel as long as the travel is overnight and more than 100 miles away from home.

A Custom Strategy to Help You Save

This article highlights some of the commonly missed tax deductions, but there could be others depending on your specific circumstances. For tailored advice, it’s wise to consult with a professional who can assess the details of your personal situation.

At Premier Planning Group, we provide customized financial planning to safeguard your future. Let us guide you through this tax season confidently. Call our office at (443) 837-2520 or email my executive assistant, Talia Grover, at taliagrover@premierplanninggroup.com to set up a complimentary consultation.

About Brion

Brion Harris is the CEO, founder, and managing partner of Premier Planning Group, an independent financial firm specializing in working with pre-retirees and retirees, helping them create customized wealth preservation and retirement distribution strategies. With over 20 years of experience, Brion has developed deep knowledge and skill in helping his clients simplify their finances and find confidence in their financial future. Brion and the Premier Planning team are known for their unparalleled client service and their dedication building long-lasting relationships with their clients. As a result, Brion has been the recipient of the #1 Advisor Leadership Award* at Summit Brokerage Services for eight years running and has a reputation as one of the top retirement advisors in the business. 

Brion is a proud 20-year resident of the Annapolis community, where he resides with his wife, Elizabeth, their three children, Addison, Jay, and Scarlett, and their two dogs, Pepper and Coco. When he’s not working, you can find him boating, skiing, traveling, and enjoying good food and music with his family. If you want to learn more about Brion, connect with him on LinkedIn.

*The #1 Advisor and Leadership Award is based on production data while at Summit Brokerage Services, Inc. Brion Harris received the award in 2014, 2015, 2016, 2017, 2018, 2019, 2020 and 2021. This award is not a guarantee of future investment success. This recognition should not be construed as an endorsement of the advisor by any client.