Top 12 Overlooked Tax Deductions: 2021

2. Moving Expenses for Military Families

All active-duty military personnel who relocate can deduct moving expenses, but only if the government doesn’t reimburse them for the move. In addition, military personnel whose move is permanent and was ordered by the military don’t have to pay tax on qualified moving expense reimbursements. Claims can include travel and lodging expenses for personnel and their family, moving household goods, and the cost of shipping cars and pets. (Source: Intuit TurboTax)

(Image: Adobe Stock)

3. Teacher Classroom Expenses

Full-time K-12 teachers can deduct up to $250 in out-of-pocket classroom expenses as an above-the-line deduction. If spouses are both teachers and filing a joint return, the deduction can be as much as $500. (Source: The Motley Fool)

(Image: Adobe Stock)

4. Student Loan Interest Paid by Parents

Generally, one can deduct interest only if one is legally required to repay a debt. But if parents repay a child's student loans, the IRS treats the transactions as if the money were given to the child, who then paid the debt. This means that as long as the child is no longer claimed as a dependent, they can deduct up to $2,500 of student loan interest paid by their parents each year, and the child doesn't have to itemize to do so. Parents, meanwhile, can't claim the interest deduction even though they actually foot the bill, because they're not liable for the debt. (Source: Kiplinger)

(Image: Shutterstock)

5. Traveling for Charity

Taxpayers who donate free time to volunteering and pay for their own travel to a charity can add those expenses to their charitable deductions. The IRS says the main purpose of the trip must be for charity, with no substantial element of a vacation. It’s important to keep receipts for public transportation or mileage logged in a car as well as receipts for parking and tolls. Note that for 2020 filers, the CARES Act allows taxpayers who do not itemize up to a $300 deduction for charitable contributions made in 2020, and suspends the 60% AGI limitation for itemizing taxpayers who donate to charity in 2020. (Source: Investopedia)

(Image: Adobe Stock)

6. Friends or Family Owe You Money

The IRS allows a tax deduction for loans made to friends or loved ones that the lender doesn’t expect to be repaid — officially, a “non-business bad debt.” The debt must be considered worthless at the time of the deduction, and can be claimed up to seven years from the date it becomes worthless. For tax purposes, the IRS would not consider valid a debt the taxpayer first made as a gift to a friend and later treated as a loan. The agency considers a debt worthless only if the debtor is suffering unemployment, foreclosure or other financial hardships. Finally, the taxpayer must have already included this income on previous tax returns. (Source: Forbes)

(Image: Adobe Stock)

7. Adoption Tax Credit

For the 2020 tax year, the adoption credit covers costs up to $14,300 per adopted child, and will rise to $14,440 next year. This year’s credit begins to phase out at $214,520 of modified adjusted gross income, and is not available to people with AGIs higher than $254,520. People who adopt children with functional needs can get up to the full credit even if their actual expenses are less. Those who adopt their spouse’s child can’t take the credit. (Source: NerdWallet)

(Image: Adobe Stock)

8. Breastfeeding Equipment and Pumps

Deductible medical expenses also include the cost of breast pumps and supplies that assist lactation. These can be expensive, so adding them to medical expenses may push the taxpayer over the 7.5% medical deduction threshold. (Source: Moneycrashers)

(Image: Adobe Stock)

9. Gambling Losses

The pandemic didn’t make gambling go away; it still took place online. Those who came up losers may be able to deduct their losses — but face two big hurdles: They can deduct the losses only if they itemize, and their deduction is limited to the amount of gambling winnings they report as taxable income. Besides traditional gambling losses, such as those at a racetrack, deductible losses include the cost of non-winning bingo, lottery and raffle tickets. (Source: Kiplinger)

(Image: Shutterstock)

10. Refinancing Mortgage Points

Homebuyers can often deduct points paid to obtain a mortgage all at one time. But when they refinance a mortgage, they have to deduct points over the life of the loan — on a 30-year mortgage, for example, 1/30th of the points per year or $33 a year for each $1,000 of points paid. In addition, in the year the loan is paid off because of sale of the house or another refinancing, all remaining points can be deducted unless the refinancing is with the same lender. (Source: Intuit TurboTax)

(Image: Shutterstock)

11. Reinvested Dividends

This isn’t a deduction, but a reminder that can save the taxpayer a nice chunk of money. Mutual fund owners whose dividends are automatically reinvested to buy more shares should remember that each new purchase increases their tax basis in the fund, which then reduces the taxable capital gain, or increases the tax-saving loss, when they redeem shares. Those who forget to include reinvested dividends in their basis expose themselves to double taxation of the dividends: once in the year they were paid out and immediately reinvested, and later when they’re included in the proceeds of the sale. (Source: Kiplinger)

(Image: Shutterstock)

12. State Taxes and Fees on Drivers

Some states tax drivers each year for use of public highways, and most demand payment to register their cars each year. Drivers in states that calculate a percentage of the vehicle registration based on the value of the car can deduct that percentage as part of their personal property taxes. However, the percentage of the registration based on the car’s weight is not tax-deductible. The same is true for a recreational vehicle or a boat. (Source: Investopedia)

(Image: Shutterstock)