By Tammy Trenta, MBA, CFP, CTC, CEXP
Founder and CEO – Family Financial
It’s a pretty safe bet that most people don’t enjoy tax time. Whether you’re expecting a refund or not, the mounds of paperwork, number crunching, and endless labyrinth of changing rules can spark agita in the best of us.
Many hope bringing in a tax professional will reduce the pain—often assuming a pro’s motivation and knowledge, especially about unearthing deductions, far exceeds their own. Unfortunately, this is a poor assumption as many preparers will deduct only what you give them, rather than proactively asking questions. So, here’s a list of six less-commonly-known deductions that you can bring up this tax season.
Keep in mind there are income limits on each of the following…
1. Summer camp and babysitting.
Sadly, many have the mistaken view that the Child and Dependent Care tax credit applies only to daycare expenses. But there are plenty of other care expenses that can be deducted. The two biggest misses that come to mind are summer camp and babysitting (provided the babysitter isn’t your spouse or another dependent child). If you are working, or out looking for work, your eligibility for this credit—$1,060 for one child or $2,500 for two or more—may be a strong possibility.
2. Classes and certificate programs.
If you sharpened your skills in 2023 by taking a certificate program, college coursework or a vocational course, you may be able to get back 20% of up to $10,000 in qualified expenses through the Lifetime Learning Credit. Bonus? There is no cap on the number of years you can claim it.
3. Saving for retirement.
While you’re probably aware of the tax benefits that come with saving for retirement, you may not know that a “double-dip” Saver’s Credit exists for taxpayers under a certain threshold.
The Saver’s Credit, part of last year’s Secure Act 2.0, works this way: Along with contributing to a retirement account and receiving the deduction for doing so, you may be able to snag an additional tax credit of $1,000 for single filers or $2,000 for married couples.
4. Gig worker? Don’t forget the home office deduction.
The home office deduction isn’t new, but the widespread influx of gig workers is a relatively recent phenomenon, so this is worth mentioning. If you are self-employed and use part of your home regularly and exclusively for work, you may qualify to deduct a percentage of your home expenses—like your rent, insurance, and utilities. (Sorry, folks – remote work alone won’t qualify you for this particular deduction).
5. Health savings accounts (HSAs) can offer a triple tax break.
Many operate under the mistaken assumption that HSAs are a use-it or lose-it perk, but in reality, contributions made to your HSA today could benefit you for years to come. HSAs offer a triple tax advantage: contributions are made with pre-tax dollars, the money grows tax-deferred, and withdrawals for qualified medical expenses are tax-free.
Here’s an example of how that can work beautifully: You could opt to pay your medical expenses today without tapping into your HSA, allowing your HSA to grow. Upon reaching age 65, you could withdraw up to 10 years’ worth of documented medical expenses from your HSA tax-free, which could be a valuable resource for retirement planning.
This strategy can be especially advantageous if you anticipate higher medical expenses in retirement, potentially saving you thousands of dollars in taxes. And you have until April 15 to make a deductible contribution to an HSA for 2023; up to $3,850 for a single filer or $7,750 for a family, plus an extra $1,000 if you are 55 and older.
6. Energy efficiency credits cover more than just solar panels.
Credits for solar panels have been around for years, but a lot of people miss the fact that credits also cover other clean energy upgrades. You can get up to $1,200 back for installing things like energy-efficient appliances, doors, windows, insulation, and heating/cooling systems. And if you’re doing renovations spanning two tax years, you can get the deduction across both tax years.
Clearly, there is more to deductions than meets the eye. Naturally your first question may be, “Am I eligible for any of these deductions?” But the smarter question is, “How can I qualify for these deductions?” The answer may take some creativity and a bit of reevaluation, but the payoff could be well worth it, making tax time less painful—and (dare I say), even a little enjoyable.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.