6 commonly missed tax deductions
It’s that time of year again—tax returns are due this month. If you’ve had any big life changes in the last year, take special care at tax time to make sure you don’t miss any deductions that you may be eligible for.
“Most individuals have more time in life not being retired, so they have the habits and tax deduction habits of when they were working that may still carry over into retirement,” says Kyle Winkfield (owrsfirm.com), managing partner of a financial services firm in Washington, D.C.
Here are some of the tax deductions commonly missed by retirees (and a few obscure ones you might not even know about!). Check with your tax advisor to see if you can claim any of these.
1. Medical expenses: Medical expenses that exceed 10% of your income are tax deductible. While it’s hard to hit that threshold while you’re working, Winkfield says it becomes more likely when people are living on fixed incomes in retirement. Keep careful records of what you spend on doctor visits, medications, procedures, long-term care insurance premiums, and Medicare part B and D premiums. “These are all deductible,” Winkfield says. “Many retirees and seniors overlook the medical expense deduction out of habit.”
2. Miles driven for charity: You know you can deduct contributions you make to nonprofits, religious groups, and some government organizations. But, did you know you can deduct 14 cents per mile for miles driven in service to a charitable organization? “For instance, you can deduct mileage for driving to a shelter to serve meals to the homeless,” says Florida financial planner Melinda Kibler (palisadeshudson.com). “You can deduct parking fees and tolls too.”
3. Gambling losses: Obviously, you’d rather win big at the casino, but if you do lose, you may be eligible for a tax deduction. “Winnings from gambling are taxable and must be reported,” says Blake Lawrence (demlplaw.com), a New York lawyer specializing in elder law and estate and tax planning. “If you had gambling losses, you can deduct up to the amount of your gambling winnings.” Of course, you should be prepared to provide documentation of gambling winnings and losses, which casinos track if you use a player card.
4. Home renovations for medical purposes: If you add things like wheelchair ramps to your house or renovate a bathroom to make it accessible, Laurence says those expenses may be tax deductible.
5. Mortgage interest on a second home or boat: Of course, you deduct the mortgage interest on your primary residence. But don’t forget about the interest on the mortgage for a second home. And Blake says a boat may qualify as a second home if it includes a toilet, sleeping quarters, and kitchen.
6. State sales tax: “As many retired taxpayers move away to states without an income tax, it’s worth evaluating if there is an opportunity to deduct state sales taxes,” says Patrick Brault (hewinsfinancial.com), a Minnesota investment advisor. “Typically, for taxpayers living in states with an income tax, that deduction offers a better outcome compared to deducting sales taxes.” However, Brault says that if you live in a state with no income tax, and are buying assets such as cars, boats, airplanes or making property improvements, you should consider taking a deduction for state sales tax.