Common Tax Deductions Individuals Miss on Their Tax Returns

Why Missed Deductions Are More Common Than You Think

Many taxpayers assume their tax software automatically captures every deduction they qualify for. In reality,
thousands of dollars in legitimate federal tax savings are missed each year simply because certain deductions are
misunderstood, overlooked, or poorly documented.

Even in states without a personal income tax, individuals are still subject to federal income taxes. Missing
deductions can result in paying more than necessary.

Below are some of the most commonly overlooked federal tax deductions and how they may apply to your return.

Commonly Overlooked Federal Tax Deductions

  1. State and Local Taxes You Can Deduct Federally
    While not everyone pays state income tax, many taxpayers still qualify for federal deductions related to:

    • Property taxes
    • Eligible sales taxes paid during the year

    Taxpayers who made large purchases such as vehicles or major household items often underestimate how much sales
    tax they paid, increasing the value of this deduction when itemizing.

  2. Student Loan Interest Paid on Your Behalf
    If someone else helps pay your student loan interest, you may still be eligible to claim the deduction if:

    • The loan is in your name
    • You are not claimed as a dependent

    This deduction can be worth up to $2,500 and is frequently missed by recent graduates and young professionals.

  3. Out-of-Pocket Medical Expenses
    Medical expenses are often skipped because taxpayers assume they won’t exceed IRS thresholds, but eligible costs
    can add up quickly. Commonly overlooked expenses include:

    • Dental and vision care
    • Prescription medications
    • Mileage driven for medical appointments
    • Certain long-term care and insurance premiums

    Careful record-keeping throughout the year can make a meaningful difference.

  4. Retirement Contributions Made After Year-End
    Certain retirement contributions can still be made after December 31 and count toward the prior tax year,
    including:

    • Traditional IRA contributions
    • Spousal IRA contributions

    These contributions can reduce taxable income while strengthening long-term retirement savings.

  5. Health Insurance Premiums for Self-Employed Individuals
    Individuals with self-employment income—even from a side hustle—may be able to deduct health insurance premiums
    paid for themselves, their spouse, and dependents. This deduction is commonly missed by freelancers, consultants,
    and gig workers.
  6. Home Office Deduction for Self-Employed Work
    When claimed correctly, the home office deduction is a legitimate and valuable federal deduction. You may qualify
    if you:

    • Use part of your home regularly and exclusively for business
    • Are self-employed or operate a side business

    Eligible expenses may include a portion of rent, utilities, insurance, and repairs.

  7. Charitable Contributions Beyond Cash Donations
    Charitable deductions aren’t limited to cash. Commonly missed items include:

    • Clothing and household items donated to qualified charities
    • Mileage driven for charitable purposes
    • Out-of-pocket expenses incurred while volunteering

    Proper documentation is essential, but these deductions can add up quickly.

  8. Education-Related Tax Benefits
    Education deductions and credits are frequently misunderstood. Missed opportunities often involve:

    • Education credits for eligible tuition expenses
    • Education costs paid for dependents
    • Interactions between education benefits and employer programs

    Choosing the correct education benefit—not just any option—can significantly impact your return.

  9. Investment and Income-Related Tax Adjustments
    Certain tax preparation and financial planning costs related to investment or self-employment income may still be
    deductible or strategically allocated, depending on circumstances. These nuances are often missed without a
    professional review.

Why These Deductions Are Commonly Missed

  • Tax laws change frequently
  • Tax software only works with the information entered
  • Life changes aren’t always connected to tax strategy
  • Documentation isn’t organized throughout the year

How to Make Sure You’re Not Overpaying

The best way to avoid missing deductions is proactive, year-round tax planning rather than last-minute filing.

A comprehensive review can help:

  • Identify overlooked deductions
  • Ensure proper documentation
  • Optimize filing status and credits
  • Reduce audit risk

approved by Kacy L. Allen, CPA, MAcc

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