Tax Deductions and Credits that are often missed

Tax filing season for calendar 2016 opened on January 20, 2017. Here is a list of tax deductions and credits that are often missed by taxpayers because they were not aware that the expenses qualified for a tax deduction or credit.

Why Taxpayers Leave Money on the Table

The tax code is long, layered, and frequently updated, which means even diligent filers routinely overlook legitimate deductions and credits. The difference between a deduction and a credit is worth understanding before diving into the list. A deduction reduces your taxable income, so the actual tax savings depends on your marginal rate. A credit reduces your tax bill dollar for dollar, making credits particularly valuable. Both deserve your attention at filing time.

The categories below cover some of the most commonly overlooked items. Reviewing them with a qualified tax professional — especially one who understands your full financial picture — can help ensure you are not paying more than the law requires.

Medical Related Deductions

(Total expenses must exceed 10% (7.5% if age 65+) of Adjusted Gross Income to be deductible)

Medical expenses are among the most misunderstood deductions because of the threshold requirement. Many filers assume they will never clear the bar and stop tracking expenses entirely. That can be a costly assumption, particularly in years when a serious illness, surgery, or chronic condition drives costs higher than expected. Keeping a running log of all out-of-pocket medical spending throughout the year makes it much easier to evaluate whether you are close to the threshold when filing time arrives.

1. Alcoholism and drug abuse treatment
2. Contact lenses, eyeglasses and hearing aids
3. Long-term care insurance premiums
4. Medical transportation costs, including the standard mileage rate of 23 ½ cents
5. Lodging expenses incurred for medical reasons

A Closer Look at These Medical Items

Treatment programs for alcoholism or drug dependency are fully deductible medical expenses when costs are paid out of pocket and are not reimbursed by insurance. This includes inpatient rehabilitation, outpatient counseling fees, and related transportation.

Vision and hearing costs — prescription eyeglasses, contact lenses, lens solution, and hearing aids — are straightforward qualifying expenses that many people forget to add up. If you purchased a new pair of glasses and hearing aids in the same year, those amounts combined can be meaningful.

Long-term care insurance premiums are particularly relevant here on the Treasure Coast, where a significant portion of residents are planning for or already in retirement. Premiums paid for a qualified long-term care insurance policy count as a medical expense, subject to age-based limits set by the IRS.

Medical transportation includes more than just ambulance rides. Driving to doctor appointments, specialist visits, physical therapy, or the pharmacy can all qualify. You may use either actual vehicle costs or the standard mileage rate noted above. Parking fees and tolls are also deductible on top of the mileage rate.

Lodging for medical care is often overlooked entirely. If you or a dependent must travel away from home primarily to receive medical care, the lodging cost — up to the IRS limit per night, per person — can be included as a medical expense. This is especially relevant when specialized treatment is only available at a distant facility.

Employment Related Deductions

Work-related deductions extend well beyond the W-2 box. Whether you are an employee, a job seeker, or self-employed, the items below can reduce your taxable income in ways many filers miss.

1. Costs of looking for a new job in your present occupation
2. IRA deduction for contributions made after the end of 2014 but before April 15, 2015
3. Employee’s moving expenses
4. Education that is work related
5. Unreimbursed employee expenses, such as license fees, business subscriptions
6. Health care insurance premiums and 50% of self-employment tax for self-employed
7. Medicare premiums paid by the self-employed
8. Simplified Employee Pension (SEP) IRAs for self-employed

A Closer Look at These Employment Items

Job search costs in your current occupation — résumé preparation, career coaching, travel to interviews — can qualify as miscellaneous itemized deductions. The key phrase is “current occupation.” If you are searching for a position in the same field you already work in, the expenses may be deductible. A first-time job search does not qualify.

Work-related education is another frequently missed item. Courses, seminars, professional certifications, and even some graduate-level programs may qualify if the education maintains or improves skills required in your current role. The education must not be required to meet minimum qualifications for a new career, but continuing education to sharpen existing skills is generally fair game.

Unreimbursed employee expenses such as professional license renewal fees, trade publications, required uniforms, and tools used exclusively for work can add up over the course of a year. Employees who track these throughout the year are better positioned to claim them accurately.

Self-employment deductions deserve special attention. Business owners and independent contractors can deduct health insurance premiums — including Medicare premiums — directly from gross income. The deduction for a portion of self-employment tax further reduces the effective tax burden. Additionally, contributing to a Simplified Employee Pension (SEP) IRA is one of the most powerful tools available to self-employed individuals for reducing taxable income while simultaneously building retirement savings. Contribution limits for SEP IRAs are substantially higher than those for traditional IRAs, making them worth exploring with a qualified advisor.

Practical Steps to Capture These Deductions

• Keep receipts year-round. Create a simple folder — physical or digital — organized by category. Waiting until April to reconstruct expenses almost always results in missed items.
• Track mileage in real time. A mileage log app or a small notebook in your vehicle makes it straightforward to capture medical and work-related driving as it happens.
• Review prior-year returns. If you filed without capturing these items in previous years, an amended return may be worth discussing with a tax professional.
• Coordinate with your financial advisor. Deductions and credits do not exist in a vacuum — they interact with your overall income level, retirement contributions, and investment activity. A fee-based fiduciary advisor can help connect the dots between your tax situation and your broader financial plan.

Closing Takeaway

Overlooked deductions and credits are not a niche problem — they affect a wide range of taxpayers across income levels and occupations. The items listed here represent areas where a modest amount of organization and awareness can translate into real tax savings. The best approach is to work with a qualified tax professional who understands your full situation, and to involve your financial advisor when decisions — such as retirement contributions or self-employment structuring — have both tax and planning implications. At Davies Wealth Management, our role as a fee-based fiduciary is to help clients see how each piece of their financial picture connects, including the tax dimension.

This content is for educational purposes only and does not constitute investment advice. Past performance is not indicative of future results. Advisory services offered through Davies Wealth Management, a Registered Investment Adviser. Please consult a qualified financial, tax, or legal professional regarding your specific situation.