By Nino Pavan, J.D., CFP®
Many people understand the importance of saving on your taxes wherever possible, but knowing when to apply the right tax deductions can save you thousands each year.
When working with clients, we take the time to build a personalized tax strategy. These are some often-overlooked tax deductions that might make a difference in your tax bill.
State and Local Income Tax (SALT) Deductions
State and local taxes can significantly increase your total tax bill. The One Big Beautiful Bill Act (OBBBA) temporarily increased the cap on state and local tax (SALT) deductions from $10,000 to $40,000. This new cap applies to most taxpayers. However, it starts to phase down for taxpayers making $500,000 or more.
The SALT cap increase is especially beneficial for California taxpayers. California has one of the highest state and local tax burdens in the country, so if you remember to take advantage of these tax deductions, you might owe significantly less.
Mortgage Interest Deduction
If you have a mortgage and itemize your deductions, you may be able to deduct interest on your loan. The Tax Cuts and Jobs Act (TCJA) allows you to deduct mortgage interest paid on up to $750,000 of loan principal.
It’s important to note that although homeowners used to be able to deduct mortgage insurance premiums, this is no longer the case. This deduction phased out in 2021.
Student Loan Interest Deduction
Repaying student loans can be financially challenging. However, you may deduct interest paid on student loans as long as your modified adjusted gross income (MAGI) doesn’t exceed a limit that’s set annually.
If you’ve paid student loan interest over the past tax year, you may deduct the lesser of these two:
- The total interest you paid
- $2,500
You may take advantage of student loan tax deductions even if you don’t itemize deductions on your tax return.
Expense Deductions for Small Business Owners
Small business owners may benefit from a range of tax deductions. One of the most important is the qualified business income (QBI) deduction. If you have a qualifying small business (like many S corporations, sole proprietorships, and partnerships), you could deduct up to 20% of business income from your personal income tax return.
Self-Employment Expense Deduction
If you’re self-employed, you may be able to take advantage of tax deductions like these:
- Home office deduction
- Tax deductions for some kinds of health insurance premiums
- Continuing education
- Work-related tools and equipment
If you’re self-employed and aren’t sure which tax deductions you qualify for, we may be able to help you make a determination.
Medical Expense Deductions
If your medical expenses exceed 7.5% of your adjusted gross income and you itemize deductions, you may be able to deduct those expenses.
HSA Contribution Deductions
Tax deductions for health savings accounts (HSAs) can be significant. That’s because HSAs come with a triple tax advantage:
- Your contributions are tax-deductible.
- Once in the account, your contributions grow tax-free.
- Withdrawals are also not taxed.
HSA contributions are “above the line” deductions, meaning you may claim them even if you take the standard deduction.
Let Us Help You Take Advantage of Tax Deductions
If you’re like many of our clients, you’re already smart about your taxes, but you want to boost your savings even further. At Financial Designs, our fiduciary approach means that we offer guidance that supports your best interests.
Navigating the world of tax deductions can be complicated, but our team is here to help you make sense of your tax picture and save money wherever possible. If you want to learn more, contact us online.
To schedule a no-obligation consultation, call (909) 626 1642 or email fdc@fdcadvisors.com today!
About Nino
Nino Pavan is President and a CERTIFIED FINANCIAL PLANNER® professional at Financial Designs, a retirement planning firm in Claremont, California, with the mission of enabling individuals and families to financially prepare for and confidently enjoy their retirement years through goal-centered planning. With more than 30 years in the financial services industry, Nino is thankful for the opportunity to serve his clients by making the retirement process a stress-free one; he worries about their money so they don’t have to!
Nino holds a law degree from the University of Southern California, a Bachelor of Science in Telecommunications Management from DeVry Institute of Technology and has been a contributing advisor to Kiplinger. In addition to being a CERTIFIED FINANCIAL PLANNER® professional and Investment Advisor Representative, Nino has passed the Series 7, 24, and 63 securities exams and holds life and disability insurance licenses. He also conducts retirement and estate planning workshops for employees of major California companies. Outside of the office, Nino enjoys sports (regular and fantasy), traveling (specifically tropical destinations), walking, pickleball, church activities, and spending time with his wife Sherry and their two children, Derek and Sara. To learn more about Nino, connect with him on LinkedIn.
