Navigating Tax Deductions in 2024: Your Ultimate Guide to Financial Freedom

There is a lot of misinformation out there, so it’s important to understand what’s factual when it comes to income tax returns.

Who is required to file a tax return?

Most U.S. citizens need to file a tax return if they made more than a certain threshold of gross income that year, which is generally based on your filing status. But even if you made less than that, you should still consider filing a tax return. This is because if you worked and had taxes withheld, you could probably get a tax refund or qualify for refundable credits, even if not required to file.

What is included in a tax return?

A tax return is made up of three parts: income, tax deductions, and tax payments made and credits received. From there, you combine all of these and calculate your tax refund or balance due.

• Income is all the money you earned during the year.
• Tax deductions provide a benefit by allowing you to deduct a certain amount from your taxable income, which means you pay less in taxes.
• The taxes you paid in, and any credits you might be qualified for, get considered.
• And then the true up and any money you are due as a tax refund or any money you owe as a tax balance due!

It’s important to work with a tax expert who understands your unique situation. You might be a single parent, be in the military, have self-employment income, or even be in a complicated family or work situation. These circumstances really should be looked at even more carefully. Otherwise, you could make a costly mistake on your tax return. This could lead you to getting a smaller tax refund, or putting you in a hold with the IRS until your tax return is figured out.

Mistakes are not just math errors or leaving income off. You can leave off tax benefits and the IRS won’t just add them back and give you more money. Leave it off and it stays off. Unless it’s income, then the IRS will fix that for you and likely send you a bill.

Don’t worry about that headache. Work with a Jackson Hewitt Tax Pro to make sure your tax return is filed accurately and includes every credit and deduction you qualify for.

Here are some of the top questions we get every tax season about deductions:

Can my education expenses be deducted?

There are great tax credits for college costs and higher education – nearly 15 benefits in all, like the American Opportunity Tax Credit and the Lifetime Learning Tax Credit—but they aren’t deductions. This means you can’t deduct the cost of your college, trade school, or other higher education classes. But there are credits available, which again, give you a dollar-for-dollar reduction or tax benefit. Besides these two lucrative tax credits, there are literally a dozen other benefits.

You cannot deduct everything you pay, but there are credits, contribution plans, education, and even student loan interest. For example, for tax year 2024, you can deduct up to $2,500 of interest paid on student loans.

Are medical expenses tax deductible?

There’s good news, and not so good news. If you have medical bills that aren’t covered by your insurance, you may be able to take a deduction on those expenses where they exceed 7.5% of your adjusted gross income. But to deduct medical expenses, you must itemize. You can’t take the standard deduction. You need a lot of medical expenses, and then other deductions, typically, to get over the threshold. But if you’re there, and unfortunately, we know many these days have significant illness or hardship, do not overlook medical deductions on your tax return if you qualify.

What expenses are tax deductible?

You can deduct unreimbursed expenses for preventative care, treatment, surgeries, and dental and vision care as qualifying medical expenses. You can also deduct other medical expenses like:

• Medical copays
• Prescriptions
• Payments made for a treatment facility including addiction services
• Payments for in-hospital care, including lodging and meals
• Payments for in-home health care and visiting health professionals
• Dental expenses including braces and dentures
• Eye exams, prescription glasses, and contact lenses, and associated cleaning supplies
• Acupuncture
• Weight loss programs for doctor-diagnosed diseases
• Insurance premiums not covered by your employer
• And more

What expenses are not tax deductible?

There are a few things that do not qualify as a medical deduction, including:

• Any medical expenses for which you are, or can be, reimbursed by either insurance or your employer
• Cosmetic or elective surgeries
• Non-prescription/over-the-counter medications, vitamins, toiletries, cosmetics, nicotine gum, etc.
• Funerals/burial services
• Medical expenses in a foreign country that are not legal in the U.S.

Are Medicare premiums tax deductible?

Yes, Medicare premiums are tax deductible if you itemize deductions on your income taxes, and if they exceed a certain percentage of your income.

Are health insurance premiums tax deductible?

Yes, health insurance premiums can be written off if you itemize deductions

In general, as long as the provided service is legal in the United States and promotes and maintains the health and wellbeing of a taxpayer, it is considered a valid health deduction.

Pro tip: check out IRS Publication 502 for more details, or talk to a tax expert to learn more—especially if you have a lot of medical expenses and talk with a Tax Pro as well.

Are home improvements tax deductible?

Yes, they can be! But you can’t write off that new pool and hot tub, or the entertainment room. There are some tax benefits for select expenses, determined by several factors.

First, you must own the home. You can’t deduct expenses for a house that you rent.

Second, general home improvement projects don’t qualify as a write off, but they could qualify for a tax break when you eventually sell your home.

Your home improvement tax deductions happen when:

1. You’ve made energy efficiency improvements, including when you have renewable-energy systems in your home. These are not deductions, but there are credits for the installation of renewable-energy systems, like solar panels, solar water heaters, wind turbines, and geothermal heat pumps. A credit means you’ll deduct that amount from the taxes you pay for the year, so you’ll pay less. This is pretty big for the current tax year!

   Starting January 2024, there is a credit for up to $3,200 of improvements made through 2032. The credit covers 30% of expenses like:

   • Qualified energy efficiency improvements installed during the year such as new windows or a new hot water heater
   • New insulation, new heat pump, new air conditioner
   • Home energy audits
2. You’ve made home improvements for medical reasons and to accommodate a disabled family member, such as adding ramps or widening doorways. You may be able to deduct these costs as a medical expense, but only for the cost of the changes that do not immediately increase the value of your home.
3. You’re self-employed and use part of your home exclusively for your business. You might be able to take a deduction on your home office.
4. You’ve made capital improvements to your home. This means adding value to your home or prolonging its useful life. They can reduce the amount of taxable income and ultimately the tax you owe when you sell your home. But, it won’t be immediately deductible. This is a huge issue if you own a home, so keep track of improvements because it can matter.
5. You’ve made improvements that extend the life of your home, like a new roof, floors or updating electrical wiring. These too are important, but not necessarily an immediate tax deduction.
6. Another thing related to your house, you can deduct your property taxes. The SALT deduction allows you to deduct up to $10,000 ($5,000 if Married Filing Separately) for a combination of property taxes and either state and local income taxes or sales taxes.

Are retirement contributions deductible?

Yes! You can contribute up to $7,000 to your individual retirement account (IRA) if you have earned income from a job or self-employment and you are under age 73. If you are age 50 or older, you may contribute up to $8,000. Your traditional IRA contributions may be tax deductible. The deduction may be limited if you or your spouse are covered by a retirement plan at work, and your income exceeds certain levels.

In addition to the general contribution limit that applies to both Roth and traditional IRAs, your Roth IRA contribution may be limited, based on your filing status and income.

When it comes time to take money out of your retirement account, you’ll owe taxes on the investment earnings in a nondeductible IRA, but not on the money you contributed. If you deducted all of your IRA contributions, you will owe taxes on whatever you withdraw. There are no tax deductions allowed on Roth IRA contributions, but you can take out the money with no taxes due. Even the earnings are tax-free.

Saving for retirement is one of the biggest and best ways to cut your taxes, save money for your future, and use the tax code for saving money. It’s not “just a rich person” deduction – in fact just the opposite. Many high-income taxpayers have limits and cannot take as big a deduction. So, if you are earning and NOT saving, you should think about it. Save money, save taxes, and build an asset. It can be very important!

How do I keep track of things that could be related to a tax deduction?

It’s important to keep good records. Best practice is to keep records for about seven years in the unlucky event that you’re audited by the IRS.

Track everything related to your tax return, job, and income. Including things like prior tax returns, receipts, canceled checks, health insurance documentation, and other documents that support any item of income as well as a deduction or credit.

We often recommend you organize all your tax-related documents into four categories: income items, deductions, life changes, and other. Organizing this way not only helps you get and stay prepared, but it also helps prompt when you and your Tax Pro for when you might qualify for a new or different tax deduction or write off.

If you don’t keep good records, you can run into issues if the IRA or state asks you for proof of your deduction. YYou most likely will get any refund on time, but the IRS will assess penalties and interest if they later disallow a deduction because you have no proof in your records. It’s best to talk to your Tax Pro to figure out how to best document what you’re taking a deduction on, or risk issues, penalties, or interest.

Have questions about what you could deduct on your tax return? Find an office near you and work with a Tax Pro today.

About the Author

Mark Steber is Senior Vice President and Chief Tax Information Officer for Jackson Hewitt. With over 30 years of experience, he oversees tax service delivery, quality assurance and tax law adherence. Mark is Jackson Hewitt’s national spokesperson and liaison to the Internal Revenue Service and other government authorities. He is a Certified Public Accountant (CPA), holds registrations in Alabama and Georgia, and is an expert on consumer income taxes including electronic tax and tax data protection.

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