Procrastinators may be tempted to take the path of least resistance and claim the standard deduction — which reduces taxable income by $6,300 for single filers and $12,600 for joint ones — but you could be leaving money on the table. Taxpayers who muscled through itemized deductions in 2016 claimed a whopping $1.2 trillion in deductions, TurboTax reported, versus $747 billion for those who claimed the standard deduction.
You can deduct any itemized expense that exceeds 2% of your adjusted gross income, CEO and co-founder of Student Loan Club Dan Rush told Mic: Think job-related costs and tax prep fees, for example. If the total of all itemized expenses exceeds the standard deduction, you'll wind up saving money.
And don't forget about tax credits, which can give you even bigger savings since every dollar you claim as a credit reduces the amount you owe in taxes by the exact same amount.
First, check out Mic's guide to filing your taxes for free — and what to do if you miss the April 18 deadline. Then, read on for 11 smart ways to avoid paying Uncle Sam even a penny more than you absolutely must.
1. Yes, you can write off your tax prep fees
If you used tax software or hired a tax preparer to do your returns last year, you can include the fee in your list of itemized deductions.
According to the IRS, the fees you can deduct "include the cost of tax preparation software programs and tax publications. They also include any fee you paid for electronic filing of your return."
If you can't remember how much you paid for tax prep last year, check your bank statement or credit card bill from last spring.
2. Save thousands with premium tax credits
If you get your health insurance through the health insurance marketplace, you may be able to lower your costs (and tax bill) with the premium tax credit — if your modified adjusted gross income is no more than 400% of the federal poverty level ($47,080 in 2016 for individuals).
Most people use the credit to offset their monthly health insurance payments — it's sent directly to your insurance company so you never see the money. But if you chose to wait until you file your taxes to apply it, you could be in for a credit of thousands of dollars, as the average monthly credit is around $291, the Kaiser Family Foundation estimated.
If you didn't already claim the credit when you applied for marketplace insurance for 2016, it's not too late to get it. Just fill out IRS Form 8962 or follow the instructions in your tax software.
3. Losing money on stocks helps on Tax Day
Offset any capital gains you had in 2016 by claiming losses on a capital investment, like a stock or mutual fund that you sold for less than you paid for it. If your losses exceeded your gains, you can apply up to $3,000 of the difference to offset taxable income, which lowers your tax liability. Sweet.
Be aware: The IRS will not count your loss toward your taxes if you buy back an investment that closely resembles the one you sold within 30 days before or after claiming your loss.
4. There's a silver lining to early withdrawal penalties
You may be able to deduct the penalty you paid for making an early withdrawal on your CD or bank savings account. "Penalties on early withdrawals of savings are tax deductible as they are considered a reduction of your AGI, ultimately lowering your taxable income," Rush, the CEO and co-founder of Student Loan Club, said. This write-off is considered an adjustment to your income, which reduces your adjusted gross income.
(What you can't do, however, is deduct an early withdrawal penalty from your IRA, which is a kind of tax.)
5. Green homes mean more "green" for you
Did you install a solar water heater or add solar panels to your home or apartment in 2016? The IRS rewards taxpayers who made energy-efficient improvements to their home with a maximum lifetime tax credit limit of $500 and a limit of $200 for the cost of adding energy-efficient windows.
Improvements that qualify include adding insulation, certain roofs and exterior doors and windows for non-business use.
Also, taxpayers earn a credit for 30% of the cost of alternative energy equipment such as solar electric equipment, wind turbines and fuel cell property. One more reason to go green!
6. Even sales taxes can be tax deductible
Most Americans can deduct their state taxes on their federal returns. But since residents of Alaska, Florida, Nevada, South Dakota, Washington, Wyoming and Texas don't pay state taxes, they should deduct state and local sales taxes instead. No need to add up all your receipts, either. Instead, the IRS has a sales tax deduction calculator you can use that estimates how much you paid based on your income and location.
Complete form 1040 and itemize deductions on Schedule A for the option to claim either state and local income taxes or state and local sales taxes. Just remember that you can't claim both sales tax and income tax, the IRS says. You've got to pick one.
7. You can write off gambling losses
Lost money at the casino? You can still come out a winner with this tax deduction: "Gambling income includes but isn't limited to winnings from lotteries, raffles, horse races and casinos," the IRS notes. "It includes cash winnings and the fair market value of prizes, such as cars and trips."
Payers should issue you a W-2G for your winnings and you can report your losses on Schedule A.
There's an important caveat though. "In order to report gambling losses on your tax return, you must claim all winnings as part of your taxable income and be eligible for itemized deductions," Rush said. "Additionally, the gambling losses deducted cannot exceed winnings." The IRS' interactive tax assistant walks you through how to report these losses.
8. Remember above-the-line deductions
Above-the-line deductions are adjustments to your income that can be taken even if you didn't itemize, as Motley Fool explains. For the 2016 tax year, check to see if you qualify for these deductions: IRA contributions, new job moving expenses, business mileage, student loan interest, education tuition and fees, paid alimony and teacher classroom expenses. You can deduct these expenses on your 1040 in the "adjusted gross income" section, but some require additional forms.
Above-the-line deductions are deducted before your AGI is calculated and reduce that figure. This reduction in your taxable income means even bigger tax savings since tax rates are based on that figure.
9. Track travel expenses to and from the doctor's office
Any travel expenses resulting from traveling to and from a medical treatment are tax deductible (use Schedule A), even if you just drove two miles to the dentist's office. Deductible transportation costs includes ambulance service, bus, taxi, train, plane fares, parking fees, tolls and the use of your auto at 19 cents per mile for 2016.
Just make sure the transportation is for covered medical expenses. Taking a cab home from your Botox beauty treatment, along with other cosmetic procedures, isn't going to cut it with Uncle Sam. "This includes expenses such as face-lifts, hair transplants, hair removal," Rosen said.
10. Your friend owe you cash? Deduct it.
Sometimes loans between friends can go bad. You thought your friend was going to pay you back, you made every attempt to collect on that debt, but alas, it never seems to get paid. While you may still be at a loss for that money, you can deduct this loss on your taxes.
"For a bad debt deduction, you must be able to prove that at the time the transaction was made, your intention was to give a loan as opposed to a gift," Rush said. The IRS says to report this loss on form 8949, along with your explanation of what happened.
11. Been robbed? Uncle Sam can help.
Did your engagement ring go missing? Or your car? If you were the victim of theft, and the stolen items were not covered by insurance, you can deduct the loss on your taxes, Rush notes. Theft means money or property taken from you through blackmail, burglary, embezzlement, extortion, kidnapping for ransom, larceny or robbery, according to the IRS.
This deduction really only works on big-ticket items, however, since any loss must be more than 10% of your adjusted gross income. There are lots of caveats and conditions, so check IRS Publication 547 for details. As with all itemized deductions, Schedule A is your friend, so report the loss there after you calculate the write-off.
Finally — now that you've done all you can to maximize that tax refund (even more tips here and here) — check out Mic's guide to the best ways to use or invest that check from the IRS. You can grow it even bigger.
Sign up for The Payoff — your weekly crash course on how to live your best financial life. Additionally, for all your burning money questions, check out Mic's credit, savings, career, investing and health care hubs for more information — that pays off.