As tax season approaches, many taxpayers are looking for ways to reduce the amount of taxes they owe. While most people are familiar with common tax deductions such as mortgage interest and charitable donations, there are several lesser-known tax exemptions that can help save money on taxes. Here are some of the more unusual tax exemptions that taxpayers might not know about.
Energy Tax Credits
If you made energy-efficient upgrades to your home or purchased a qualifying electric vehicle, you might be eligible for energy tax credits. These credits can help reduce your tax liability by up to 30% of the cost of the improvement or vehicle, up to a certain limit. Some examples of energy-efficient upgrades that qualify for tax credits include solar panels, geothermal systems, and energy-efficient windows and doors.
Educational Tax Credits
Parents who have paid for their child’s college education may be eligible for educational tax credits. The American Opportunity Credit and Lifetime Learning Credit both provide tax relief for qualified education expenses. The American Opportunity Credit is available for the first four years of college and can be worth up to $2,500 per year. The Lifetime Learning Credit is available for any level of higher education and can be worth up to $2,000 per year.
If you live in an area that has been declared a federal disaster zone due to a natural disaster such as a hurricane or wildfire, you may qualify for disaster relief tax exemptions. These exemptions can include deductions for property damage, casualty losses, and losses related to a business or income-producing property. Taxpayers affected by the ongoing COVID-19 pandemic may also be eligible for certain tax exemptions and credits.
Adoption Tax Credits
Families who have adopted a child may be eligible for tax credits related to adoption expenses. These credits can offset the cost of adoption fees, travel expenses, and other qualifying expenses. The maximum adoption tax credit for 2020 is $14,300 per child, which can help cover the expenses associated with the adoption process.
Home Office Deductions
If you work from home or run a business out of your residence, you might be eligible for home office deductions. These deductions can help offset the cost of home office expenses such as rent, utilities, and equipment. To claim a home office deduction, you must have a designated workspace in your home that is used exclusively for business purposes.
While traditional tax deductions such as mortgage interest and charitable donations are well-known, there are many other tax exemptions that can help taxpayers save money on taxes. From energy tax credits to disaster relief exemptions, these lesser-known tax breaks can provide much-needed relief for taxpayers in a variety of situations. Before filing your taxes this year, take some time to research which tax exemptions you might be eligible for and don’t miss out on any potential savings.