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If you’re smart about it, you can knock down the amount you owe in income taxes by claiming absolutely every credit and deduction you can legally take. The US tax code offers more ways than you probably know about to offset your income.
Whittling down your tax obligation requires four things: a good understanding of what’s allowable, evidence that you incurred the expenses you claim, a solid system for organizing that documentation, and a thorough and effective way to prepare your taxes (such as online tax software). Read on to learn more about these requirements so you can maximize your tax write-offs for the 2024 tax year.
What Expenses Are Deductible?
There are two types of write-offs: tax credits and tax deductions. Tax credits are always preferable to tax deductions because they reduce your total tax liability dollar for dollar. Deductions merely lower your adjusted gross income (AGI), which is your taxable income.
Tax write-offs fall into several categories on IRS Form 1040. They relate to elements of your personal and business finances:
- Your home: Disaster casualty and thefts, mortgage insurance premiums, mortgage interest, the Mortgage Interest Credit, military moving expenses, and property taxes
- Your health: HSAs, medical and dental expenses, MSAs, and the Premium Tax Credit
- Your dependents: The Child Care Credit, the Child Tax Credit, and qualified adoption expenses
- Your education: 529 plans (you take this deduction on your state return), the American Opportunity Tax Credit, college tuition expenses, the Lifetime Learning Credit, student loan interest, and teacher expenses
- Your retirement: IRA contributions, the Retirement Savings Credit, self-employed retirement contributions, and some investment interest
- Your conservation practices: The Alternative Fuel Vehicle Refueling Property Credit, the Clean Vehicle Credit, the Home Energy Credit, and the Investment Credit
- Your small business: Common business expenses, depreciable assets, home office expenses, the Qualified Business Income deduction, small employer health insurance premiums, and the Section 179 carryover
- Your miscellaneous situations: The Credit for Elderly or Disabled, donations to charities, the Earned Income Credit, and gambling losses
What Kind of Expense Documentation Do You Need?
You probably know about some of what the IRS requires since tax documents have already likely arrived in the mail. Starting in January, you should have one or more envelopes that say something like “Important tax information enclosed.” Or you might have gotten some forms electronically. Look at all of them, even if you don’t recognize the sender. Some could be related to your income, but others prove that you’re eligible for a particular credit or deduction, such as:
- Form 1098 (mortgage interest)
- Form 1098-T (college tuition expenses)
- Form 1098-E (and student loan interest)
- Form 1095-A (Premium Tax Credit for health insurance purchased through the Marketplace)
In some cases, you might already have the necessary form. For example, your state or local government might have issued you a Mortgage Credit Certificate that could qualify you for the Mortgage Interest Credit, which is designed to help low-income individuals afford homes.
What If You Don’t Have An Official Tax Document?
Some deduction documentation doesn’t come from an external source with an annual total. For example, if you donated to a charity, you probably received a receipt immediately following your contribution. If you didn’t and you plan to claim it, you need to contact the nonprofit.
Unreimbursed medical expenses are another potential write-off, but you can’t claim them unless they total more than 7.5% of your AGI. Most medical practices have independent billing and payment procedures and unique forms. You need to save every proof of payment they give you. If you weren’t saving these statements as you went along, it might be possible to get an annual summary from sources like your clinic, hospital, health insurance company, or pharmacy.
Can You Write Off Work-Related Expenses?
If you operate a small business or do gig work, you might be in for some challenging bookkeeping. While much of your work-related income is likely to show up on a Form 1099-NEC, 1099-K, or 1099-MISC, it’s up to you to track your deductible expenses.
You should have a bank statement, check duplicate, credit card bill, receipt, or other written documentation for every penny you spend operating your trade or business. Don’t submit them to the IRS with your tax return. Just keep them safe for a minimum of three years.
The IRS says you can claim “ordinary and necessary” expenses, so use your best judgment or consult an accounting professional. Deduct everything you can without pushing it. The IRS will scrutinize your rationale if you are ever the subject of an audit.
What's the Best Way to Organize and Store Expense Documentation?
At the very least, use a manual method. Label folders or large envelopes by month or expense category, and store all your paper receipts. If you have electronic receipts, store them in dedicated folders or use a cloud storage service.
If you really want to be organized and save time during tax preparation, consider creating a spreadsheet in Excel or Google Sheets for all your expenses—and update it daily or weekly. Keeping a spreadsheet saves you the trouble of thumbing through stacks of receipts, credit card bills, and other papers when it's time to do your taxes—though you still need that documentation.
Every entry in your spreadsheet should include the amount, date, tax category (such as advertising, office supplies, and vehicle expenses), and vendor. They will go on Schedule C when you prepare your taxes. If you’re new to self-employment, take a look at Schedule C to explore what the IRS expects to see there.
Can Any Apps Store Tax-Related Expenses?
Personal finance apps and small business accounting software can save time and provide a path to organized expense files. For one thing, you can connect your online bank accounts to them and automatically import transactions. These applications display your transactions in registers that list the date, expense category, vendor, and other details.
It's very important that you assign categories accurately because you’ll need to pull out anything you spent money on that you can deduct on your income taxes. Categories vary from app to app, but they can include things such as charitable donations, office supplies, and vehicle expenses. Rocket Money, for example, allows you to earmark transactions as being tax deductible.
Once you assign a category to a specific vendor, many apps, including Quicken Classic, let you set up rules for automatically categorizing similar transactions. This can save you time and help minimize errors. Personal finance and small business accounting applications also offer customizable reports that can show transactions by category and provide lists of deductible transactions.
Some, like Intuit QuickBooks Online and Zoho Books, let you snap photos of receipts with your phone and turn them into expenses in the app. That way, you have both a digital photo of your receipt and a form documenting the purchase. If you’re not using personal finance or small business accounting software, you’re missing out on tremendous tools for organizing your personal and business finances in ways that go way beyond tax preparation.
How Do You Get Your Write-Offs Onto Your Tax Return?
If you’ve been updating your business expense spreadsheet or doing your accounting in a dedicated app like QuickBooks Online, you just have to transfer your category totals to Schedule C on your return. TurboTax and other tax prep apps walk you through Schedule C and provide fields for all of your tax categories.
Like paper tax forms, most tax prep applications offer only one field for each category’s totals. TurboTax, though, allows you to create a table with multiple entries for each, meaning you can break out individual types of expenses for each category.
Unless you have a spreadsheet or financial software, there’s no getting around the process of adding up all the expenses you incurred running your business. So, get your calculator ready if you’re a small businessperson who files Form 1040 and Schedule C. It’s a time-consuming part of the process of claiming tax write-offs to offset your self-employment income.
Still, it’s definitely worth the extra effort required to learn about the deductions and credits you can claim on your 1040. Try to keep income taxes in the back of your mind as you make purchases and pay bills throughout the year, and track your receipts and other expense documentation as you go. It will make your tax preparation much easier and could substantially lower your tax liability.
For more tax help, read up on why tax software beats paper filing.