Please ensure Javascript is enabled for purposes of website accessibility

7 Tax Deductions You Should Know About

By Dan Caplinger - Updated Apr 12, 2019 at 7:34AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Did you claim everything you could on your tax return?

April 15 is almost here, and millions of taxpayers are working hard to get their returns completed in time. For many, the relentless pursuit of last-minute tax breaks provides enough incentive to get across the finish line.

However, especially with tax reform now in the books, it's easy to forget what tax deductions are available. With that in mind, here are some of the more common deductions you'll still find in the tax laws, so you can make sure that you've taken full advantage of whichever ones you can.

1. Cash charitable donations

Most people understand that when you write a check, donate via text message, or charge a gift to a credit card, you can deduct money that goes to charity. Yet all too often, it's easy to forget the $5 you dropped into a firefighter's bucket at a traffic light or the cash you put in a coffee can at work to go toward charitable causes. However, cash donations are legitimate deductions, and as long as they're small, you won't need the sort of documentation that larger gifts can require.

Red ribbon with a heart symbol and word Charity.

Image source: Getty Images.

2. State and local taxes, when paid

There's been a lot of attention to the new $10,000 limitation on deductions for state and local taxes. Yet what often trips people up is that they fail to include money they spent on taxes during 2018 if it was to pay a tax bill from a different year. Whether it's a property tax bill that's due half this year and half next or a state income tax bill for the 2017 tax year that you paid in early 2018, what matters for deduction purposes is when you actually paid the tax, not the period in which it was incurred.

3. State sales tax

Along the same lines, many people don't realize that they have a choice when it comes to claiming a deduction for taxes paid. You can deduct either your state income tax or your state sales tax, but not both. For those taxpayers who live in states without an income tax, the sales tax deduction is especially useful, particularly because there are safe-harbor amounts you can claim based on your income without having to track every single penny of sales tax you paid throughout the year.

4. Driving for charity

Most people know that if you drive for business, many employers use the IRS rate to calculate reimbursement. But many people don't realize that there's a different amount that you're allowed to take as a deduction if you drive for charitable purposes. The rate is $0.14 per mile for the 2018 tax year, and you're allowed to take it just like any other charitable deduction.

5. Early withdrawal penalties on CDs

If you have a certificate of deposit at a bank and you needed to get your money out before it matured, then you probably had to pay an early withdrawal penalty. You're allowed to take the amount of the penalty you paid as a deduction, and, best of all, you don't have to itemize to do so.

6. Student loan interest

The student loan interest deduction applies to most loan repayment situations, and there's even a rule that many people don't know. If you're an adult who's not a dependent and your parents paid some of your student loan payments, then you can still claim the deduction on the portion of those payments that represents interest. The reason: Your parents are deemed to have given the money to you and you're deemed to have then made the loan payment.

7. Points on refinanced mortgages

In some cases, if you pay points on a new mortgage loan, you get to deduct the entire payment right away. But on refinanced mortgages, you'll typically have to take that deduction in small portions each year for the life of the mortgage loan. It's easy to forget those future deductions down the line -- but doing so can be costly.

Save what you can

It's hard to keep deductions straight, but you deserve to take as many as you can. By being aware of these and the many other tax breaks available to you, you'll be able to keep your tax bill as low as it can go.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
336%
 
S&P 500 Returns
115%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 06/25/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.