Deductible expenses reduce your taxable income and can be claimed on your tax return to lower your overall tax liability. Both individuals and businesses can benefit from understanding which expenses are deductible.
Deductible Expenses for Individuals
Whether you're a salaried employee, freelancer, or retiree, you may be able to claim various deductions. Here are some of the most common:
- Mortgage Interest
If you own a home, you can typically deduct interest paid on your mortgage, especially for your primary residence and in some cases a second home. This deduction is capped based on the amount of the loan. - Student Loan Interest
You can deduct up to $2,500 of interest paid on qualifying student loans. This applies even if you don't itemize your deductions. - Medical and Dental Expenses
Qualified unreimbursed medical expenses that exceed 7.5% of your adjusted gross income (AGI) are deductible. This includes procedures, prescriptions, and health insurance premiums (in some cases). - Charitable Contributions
Donations made to qualified nonprofits—cash, goods, or mileage driven for charitable work—can be deducted. Be sure to keep acknowledgment letters or receipts. - State and Local Taxes (SALT)
You can deduct up to $10,000 in state and local income, sales, and property taxes combined. - Retirement Contributions
Contributions to traditional IRAs and other qualified retirement accounts may be deductible, depending on your income and participation in employer-sponsored plans. - Educator Expenses
Teachers and eligible educators can deduct up to $300 of out-of-pocket classroom supplies per year.
Business Deductible Expenses:
- Business Meals: A portion of meals directly related to business activities can be deducted.
- Travel Costs: Business-related travel expenses, including airfare and lodging, are deductible.
- Home Office: If you work from home, you may be able to deduct a portion of your housing expenses as a home office deduction.
Important Notes and Best Practices
- Keep Thorough Records
Save receipts, invoices, bank statements, mileage logs, and written explanations for all deductions. Digital tools like expense-tracking apps can simplify this process. - Use Accounting Software
Consider using AI bookkeeping software or apps tailored to freelancers and small businesses to automatically categorize deductible expenses. - Understand IRS Requirements
The IRS has strict guidelines about what qualifies as “ordinary and necessary” for business deductions. If you’re unsure, consult a tax professional. - Stay Updated
Tax laws change frequently. Deductions that were allowed last year might be adjusted or removed in the current year’s tax code.
Pro Tip: Consider Itemizing vs. Standard Deduction
For individuals, it may be more beneficial to itemize your deductions if they exceed the standard deduction (which is $13,850 for single filers and $27,700 for married couples filing jointly in 2024). Evaluate both methods to determine which provides the greater benefit.
