Americans leave billions of dollars on the table every year by failing to claim legitimate tax deductions. Some are obscure, some just require knowing they exist, and some are commonly misunderstood. Before you file — or hand your documents to a preparer — make sure you've considered these.
Disclaimer: Tax laws change frequently and individual situations vary. This article is for general educational purposes only and does not constitute tax advice. Consult a licensed CPA or tax professional for advice specific to your situation.
Understanding Deductions: Above vs. Below the Line
Above-the-line deductions (now called "adjustments to income") reduce your gross income regardless of whether you itemize or take the standard deduction. Everyone can benefit from these.
Below-the-line deductions only help if the total exceeds your standard deduction ($14,600 for single filers, $29,200 for married filing jointly in 2024). You claim the higher of standard or itemized.
Above-the-Line Deductions (Available to Everyone)
1. Student Loan Interest
You can deduct up to $2,500 in student loan interest per year — even if you don't itemize. Income limits apply (phases out above ~$75,000 single, ~$155,000 married). Your loan servicer sends a Form 1098-E showing interest paid.
2. HSA Contributions
Contributions to a Health Savings Account are deductible if you make them directly (not through payroll). HSAs require enrollment in a high-deductible health plan but offer a triple tax advantage: deductible contributions, tax-free growth, and tax-free withdrawals for medical expenses.
3. IRA Contributions
Traditional IRA contributions may be deductible depending on your income and whether you have a workplace retirement plan. For 2024: up to $7,000 ($8,000 if 50+). Income limits apply if you or your spouse have a 401(k).
4. Self-Employment Tax Deduction
Self-employed individuals pay both employer and employee portions of Social Security and Medicare (15.3%). You can deduct half of this — the "employer" portion — on your return. This is automatic when filing Schedule SE, but make sure your preparer includes it.
5. Self-Employed Health Insurance Premiums
If you're self-employed and pay your own health insurance, the premiums are deductible — including for your spouse and dependents. One of the most significant above-the-line deductions for self-employed workers.
6. SEP-IRA or Solo 401(k) Contributions
Self-employed individuals can contribute up to 25% of net self-employment income to a SEP-IRA (up to $69,000 in 2024) or similar amounts to a Solo 401(k). Contributions reduce taxable income dollar-for-dollar.
7. Alimony (Pre-2019 Divorce Agreements)
If your divorce was finalized before January 1, 2019, alimony payments may be deductible. For divorces after that date, alimony is neither deductible to the payer nor taxable to the recipient under tax reform changes.
Itemized Deductions (Worth Checking Against Your Standard Deduction)
8. State and Local Taxes (SALT) — Up to $10,000
You can deduct up to $10,000 of state and local income taxes, sales taxes, and property taxes combined. The cap was introduced in 2017 and significantly limits this deduction for people in high-tax states.
9. Mortgage Interest
Interest on up to $750,000 of qualified home loan debt is deductible (for loans originated after December 15, 2017). If you have a large mortgage, this can be substantial and push you well above the standard deduction.
10. Charitable Contributions
Cash donations to qualified organizations are deductible. Donations of appreciated stock or property can be particularly powerful — you deduct the fair market value and avoid capital gains on the appreciation.
Often missed: mileage driven for charitable purposes (14 cents/mile), out-of-pocket expenses when volunteering, and smaller donations that add up.
11. Medical Expenses Above 7.5% of AGI
You can deduct medical expenses that exceed 7.5% of your adjusted gross income. With a high AGI, this threshold is hard to cross. But in a year with major medical expenses — surgery, chronic condition treatment, dental work, long-term care — it can be significant.
What qualifies: doctor visits, prescriptions, medical equipment, LASIK, dental, vision, mental health treatment, certain home modifications for disability, and more.
Commonly Missed Self-Employment Deductions
12. Home Office Deduction
If you use part of your home regularly and exclusively for business, you can deduct either:
- Simplified method: $5 per square foot, up to 300 sq ft ($1,500 maximum)
- Regular method: Actual expenses (mortgage interest or rent, utilities, insurance) prorated by the office percentage of total home square footage
Remote employees (W-2 workers) cannot claim this since 2018 tax reform. Self-employed individuals and business owners can.
13. Business Vehicle Expenses
If you use a vehicle for business (not commuting), you can deduct either:
- Standard mileage rate: 67 cents per mile for 2024
- Actual expenses: Gas, insurance, repairs, depreciation, registration — prorated by business use percentage
Keep a mileage log — the IRS requires documentation.
14. Business Education and Professional Development
Courses, workshops, conferences, books, subscriptions, and professional association dues related to your current occupation are generally deductible as business expenses.
Note: Education that qualifies you for a new career is not deductible. Continuing education in your current field is.
15. Business Meals
50% of the cost of meals with clients, customers, or business associates is deductible — provided there's a genuine business purpose. Keep records: who you met with, what was discussed, and the business relationship.
One More: The Earned Income Tax Credit (EITC)
Not a deduction but a credit — often more valuable. The EITC is a refundable tax credit for lower-income workers. Yet roughly 20% of eligible workers don't claim it, often because they don't know they qualify.
Eligibility for 2024: Investment income under $11,600, earned income limits varying by number of children. The IRS's EITC Assistant tool can help you check eligibility.
Tax preparation software will catch most standard deductions. A CPA who specializes in your situation — particularly self-employment or real estate — will often find deductions that software misses. For complex returns, the cost of a professional usually pays for itself.