Tax season is upon us. Are you one of the many people who experience overwhelm and stress at the complexity of the tax code and continuous changes that are hard to keep up with? It’s important to be aware of the current regulations while taking advantage of the deductions available to you to help increase your savings. Fortunately, there are many resources accessible to make sure you’re not paying more in taxes than you should. Here are six of the most commonly overlooked deductions that can help you keep more of your hard-earned money in your pocket this year.
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 are also deductible too. (1)
For instance, if you participate in charitable activities that involve up-front expenses, these are fully 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 2022, you can also deduct 14 cents per mile (2) and the cost of tolls.
Remember to keep your receipts and obtain verification for any contributions over $250 to make sure all your bases are covered.
Self-Employment Tax Deduction
For self-employed individuals, you can deduct a portion of the Social Security and Medicare tax you pay. (3) 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, (4) 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 (5) over the course of the year, even if the loan is repaid by someone else.
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.
With student loan payments on pause for the last two years, many people will not qualify. If you have consistently made payments, or if you have paid down the interest portion on any of your student loans in 2022, make sure to claim this deduction if your modified adjusted gross income is less than the phase-out threshold. (6)
Medicare Premiums for Self-Employed Individuals
If you’re over the age of 65, enrolled in Medicare, and continuing to run your own business, then you can deduct 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 (7) 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 and enrolled in Medicare, you can still deduct the cost of healthcare (and long-term care) premiums (8) 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 (9) to claim the state income tax paid, then any refund received is not considered income at the federal level.
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 2022 and you did not receive a reimbursement from the government for your move, you will be able to deduct move-related expenses (10) 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 (11) as long as the travel is overnight and more than 100 miles away from home.
Don’t Miss the Opportunity to Increase your Tax Savings
Are you looking to increase your tax deductions for the 2023 tax season? Knowing which deductions you qualify for can help you save money and safeguard your financial future. At Stratos Wealth Partners, we provide personalized financial planning advice to help you identify the deductions you qualify for. From student loan interest to medical expenses, there are a variety of deductions available, and our knowledgeable professionals can help you find the best ones for your unique situation. Don’t miss out on the opportunity to save money—contact us today by scheduling a complimentary introductory call at 330-576-3912 or lguiney@stratoswp.com.
About Liam
Liam Guiney is partner, financial advisor, and client portfolio manager at Stratos Wealth Partners, an independent investment advisory firm providing personalized financial plans to help clients pursue their goals. With over 20 years of experience, Liam is dedicated to walking his clients through their financial opportunities and challenges, simplifying the complex so they can focus on what’s most important to them. Liam is known for building long-lasting relationships and focusing on individual needs to develop strategies that will help his clients prepare for their ideal retirements.
Liam graduated from the University of North Carolina Greensboro with a bachelor’s degree and earned a Master of Science at Wake Forest University. He is also a CERTIFIED FINANCIAL PLANNER™ professional. When he’s not working, Liam spends his free time with his wife, Alice, and their son, Nicholas. You can often find him exercising, golfing, or supporting his favorite community organizations through fundraising and volunteering, such as Catholic Charities, the Make-A-Wish Foundation, and cancer research organizations. To learn more about Liam, connect with him on LinkedIn. Or watch his latest webinar: 5 Questions You Should Answer Before You Retire.
This material was prepared for Liam Guiney’s use. Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.
_______________
(1) Is This Deductible? My Volunteer Work, https://blog.turbotax.intuit.com/tax-deductions-and-credits-2/is-this-deductible-my-volunteer-work-30599/
(2) IRS Mileage Rate 2022, https://www.driversnote.com/irs-mileage-guide/irs-mileage-rate-2022
(3) Self-Employment Tax (Social Security and Medicare Taxes), https://www.irs.gov/businesses/small-businesses-self-employed/self-employment-tax-social-security-and-medicare-taxes
(4) Self-Employment Tax (Social Security and Medicare Taxes), https://www.irs.gov/businesses/small-businesses-self-employed/self-employment-tax-social-security-and-medicare-taxes
(5) Topic No. 456 Student Loan Interest Deduction, https://www.irs.gov/taxtopics/tc456
(6) Biden-Harris Administration Announces Final Student Loan Pause Extension Through December 31 and Targeted Debt Cancellation to Smooth Transition to Repayment, https://www.ed.gov/news/press-releases/biden-harris-administration-announces-final-student-loan-pause-extension-through-december-31-and-targeted-debt-cancellation-smooth-transition-repayment
(7) Topic No. 502 Medical and Dental Expenses, https://www.irs.gov/taxtopics/tc502
(8) Deducting Health Insurance Premiums if You’re Self-Employed, https://turbotax.intuit.com/tax-tips/home-ownership/deducting-health-insurance-premiums-if-youre-self-employed/L6bRhLaVE
(9) 1099 Information Returns (All Other), https://www.irs.gov/faqs/interest-dividends-other-types-of-income/1099-information-returns-all-other/1099-information-returns-all-other
(10) 2022 Instructions for Form 3903, https://www.irs.gov/pub/irs-dft/i3903--dft.pdf
(11) Topic No. 511 Business Travel Expenses, https://www.irs.gov/taxtopics/tc511