Buzz
In addition to being outrageously high, our taxes are also notoriously complicated—more so than the tax codes in other countries. The average person spends about 13 hours preparing their tax returns annually, and even then, the IRS reported 17 million mistakes in 2022 alone. On top of that, the tax code changes every year, which is why many people depend on tax software or a costly accountant to handle their filings.
The real issue with our complex tax system is that it often causes us to miss out on potential savings. There are plenty of deductions available, particularly for professional (like a bodybuilder who deducted nearly $14,000 for body oil) or medical expenses (for example, if you have a condition that can be alleviated by installing a pool in your backyard, you can actually deduct that expense). But there are a few surprising items you may be eligible to claim.
Ransoms
When you think of the word “ransom,” you might imagine wealthy individuals or celebrities being kidnapped (or even their pricey pets), but nowadays, we’re all at risk of falling victim to ransomware, which locks your hard drive and demands payment for the decryption key. If you do get caught up in such a scam, there is a small silver lining: Your ransom payment is likely tax deductible, especially if your business was involved (and remember, as a freelancer, you are a business). Ransom is classified as a form of theft, and although you'll probably need proof that you made the payment, getting back at least some of that money can help ease the blow.
Pets
While you can’t just deduct every veterinary or food expense for your pet, if you can legitimately argue that your pet serves a specific purpose, you might be able to deduct some of their costs. For example:
If your pet is an official service animal or emotional support animal, you may be able to claim them on your taxes. However, you can’t just claim your dog as an “emotional support” animal—you’ll need a legitimate diagnosis to make this deduction valid.
If your pet was acquired for a specific role, such as a guard dog or a cat brought in to handle a mouse infestation, you may be able to claim their care as a business expense (sorry, your protective husky likely won’t count for personal deductions, even if they do guard your home). Also, note that the breed of the dog is important—don’t expect the IRS to accept that your tiny, trembling lapdog is a security measure for your home or business.
If you have to relocate due to a job change, and depending on how far you need to move and the number of hours you work, you might be able to deduct your pet’s relocation expenses on your taxes.
Sales tax
It might sound a bit perplexing, but you can actually claim taxes you’ve paid on your federal taxes. If you’re familiar with the state and local tax (SALT) deduction, you may know that you can deduct taxes paid to states or local governments. However, you may also have the option to claim sales taxes instead (though you generally can’t claim both). Whether you opt for the sales tax deduction depends on a few factors: a) whether your state imposes an income tax and b) how much sales tax you paid last year. If you made a large purchase and faced a hefty sales tax, this could be the better choice for you.
Health insurance
If you're self-employed, you're no stranger to the challenge of finding and paying for your own health insurance. Despite the Affordable Care Act of 2014 and the American Rescue Plan Act of 2021, the cost is still significant and something you have little choice but to bear. The silver lining, though, is that if you're self-employed, you can deduct 100% of your health insurance premiums, which can significantly reduce the amount of federal taxes you owe.
Home sale
Did you sell a house last year? You’re likely aware that you can exclude $250,000 of the sale price from your taxable income ($500,000 if you're married and filing jointly). But there’s more: You can also reduce your taxable income from the sale by deducting most of the costs associated with selling the home, including:
Real estate agent commissions
Legal expenses
Bank and escrow service fees
Advertising costs
Home staging expenses
Repairs and renovations completed within 90 days of the sale
Gambling losses
Although it may seem counterproductive, you can actually recover something for your gambling losses. If you're a “casual gambler” (meaning you don’t rely on gambling as a living), while you’re required to report any winnings as income, you can also deduct your losses from your taxes. However, there’s a limit: You can only claim losses up to the total amount of your winnings. For instance, if you won $50,000 but lost $75,000, you can only claim $50,000 worth of losses—and you must provide receipts to back it up.
Bad debts
You don’t have to be a business to deduct a bad debt on your taxes. If you lent money or paid for services that were never provided, you can claim the loss as a nonbusiness bad debt. You'll need to prove the debt, show that you made sincere efforts to recover it, and provide a clear explanation. If it’s money you lent, you’ll also need to convince the IRS that it was a loan and not just a regrettable gift—and gifts aren’t deductible. Generally, this means that interest was charged or there’s a formal loan agreement in place.
