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Paragon Blog

7 Tax Deductions You Might Not Know About

Memphis, TN - March 16, 2016

As tax time fast approaches, it pays to uncover every possible deduction that will help. Here are seven less-common tax deductions that might even put a smile on your face when you sign your return.

1. Certain types of interest

While personal interest (such as credit cards or personal loans) is not tax-deductible, many other types of interest typically are, including business financing. So if you’ve taken out a business loan or are using a credit card solely for business expenses, you might be able to deduct the interest that results. Additionally, most interest from personal mortgages, home equity financing, student loans and even boats with living quarters is also deductible.

2. Continuing education

No matter how long you’ve been out of school or how old you are, becoming a student again may qualify you for lifetime learning credit if it involves picking up new job skills. This credit provides up to $2,000 annually, depending on income level.

3. Working from home

Whether you own a business or are a telecommuting employee, working from home can save you more than transportation costs; it may qualify you for a home office deduction. Just be sure you use a set portion of your home solely for business, and that this is the primary space for your business.

4. Other taxes paid

Most people know to deduct state, local and property taxes on their federal returns, but the list of deductible taxes paid doesn’t stop here. Sales tax is an often-neglected deduction, and if you’ve made major purchases this year such as fine jewelry or new vehicles, this deduction can be sizable. Foreign taxes paid also may qualify for deductions, as well as co-op owners’ share of their building’s property taxes.

If you’re your own boss, you’re probably already aware of the steep self-employment Social Security tax requirement, which equals 15.3% of income. The compensation for this is that you’re allowed to deduct 7.65% of that income, which is what your employer would have paid if you worked for someone else.

5. Business insurance

Although most personal insurance expense (with the exception of health coverage) isn’t deductible, business insurance — available through financial institutions like Paragon Bank in partnership with major insurance providers — generally is. Some business coverage types that can qualify for deductions include:

  • Malpractice/professional liability
  • Casualty/theft
  • Health/accident
  • Business vehicles
  • Business property

6. Charitable gifts

It’s common knowledge that money donated to charity is deductible, but not everyone realizes that non-monetary donations also may qualify. These gifts include items such as vehicles and clothing as well as expenses incurred to make donations. One could deduct what it costs to make food for a charity, along with the bridge tolls paid to transport that food to the event.

7. Tough times

If it’s been a rough year personally or for your business, you might just qualify for a tax break. These major losses may be deductible if they exceed 10% of income and weren’t covered by insurance:

  • Car accidents
  • Earthquakes, storms, floods and fire
  • Terrorist attacks
  • Vandalism
  • Shipwrecks

Additionally, bad debts suffered by businesses (and sometimes even personally) may be deductible if they’re legally documented and completely uncollectible.

Discovering just a few new deductions can make a big difference in your tax outcome. You’ll be glad you did your homework when you enjoy a much smaller tax bill or perhaps even a sizable refund.

Roberta Pescow, NerdWallet

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