Maximize Your Refund: Essential Guide to Forgotten Tax Deductions

ByAgkidzone Staff

Updated: Aug 2, 2024

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The tax code can feel like a labyrinth, growing more complex with each passing year. As a result, numerous eligible tax deductions often go unnoticed, leaving money on the table. Whether your tax situation seems straightforward or not, taking advantage of these lesser-known deductions could turn what you owe into a welcome refund.

Self-Employment Social Security Tax

For the self-employed, paying the employer’s share of Social Security tax (half of the total 15.3% for Social Security and Medicare taxes) is a reality. Unlike regular employees whose employers cover half, self-employed individuals cover it all and can deduct the employer-equivalent portion on their taxes.

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Student Loan Interest Paid Deduction

An often-missed deduction is for student loan interest paid by parents or other relatives. The IRS treats these payments as gifts to the student, allowing the student to deduct the interest, even though the payments were made by someone else.

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Out-of-pocket Charitable Contributions

Beyond the cash donations to charities, you can deduct costs incurred while aiding others. If you've driven your car for a nonprofit event, like a Girl Scout function, you can deduct the mileage. Similarly, the ingredients for brownies baked for a charitable sale, or food given to qualified food drives, can also be deducted. Don’t leave these deductions on the table—they can add up!

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Earned Income Tax Credit (EITC)

The EITC is a tax credit based on your income and is higher if you have dependents—though many childless individuals qualify as well. Surprisingly, each year, numerous eligible folks don’t claim it, even though it can reduce the taxes you owe and potentially provide a refund.

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Moving Expenses for Your First Job

New college grads can deduct moving expenses for their first job, a fact often overlooked. This one-time deduction is valid only for the first job relocation and can significantly reduce your tax burden if you moved to start your career.

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Deducting Last Year's State Tax

Many are aware that state taxes withheld from paychecks or paid as quarterly installments can be deducted. However, it's less known that state taxes paid last year when filing can also be deducted this year. If you paid state taxes after filing last year, or had withholdings for previous state tax debts, those amounts are deductible this year.

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Refinancing Mortgage Points

While the deduction for mortgage points at purchase is commonly recognized, many don’t realize they can also deduct points paid during refinancing. Unlike the immediate full deduction when buying, points from refinancing are deducted gradually over 30 years—a subtle but beneficial deduction.

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American Opportunity Credit

This credit benefits college students—or their parents—by covering expenses like tuition and books for the first four years of college. Capped at $2,500 per year, this credit is a direct deduction from your taxes owed, though it's non-refundable, which means you won't get back more than you owe.

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State Sales Tax Deduction

Residents of states without an income tax aren't excluded from deductions. The IRS provides a deduction for state sales taxes, which can be calculated using an IRS-provided formula—no need to save every receipt throughout the year.

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Child and Dependent Care Credit

While many parents know they can deduct a portion of childcare expenses, they often overlook that costs for summer camps (if they align with work hours) and elder care are also deductible. This credit directly reduces your tax liability, making it an important opportunity for savings.

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