Which expenses are tax-deductible? Tax Deduction Guide

Understanding what is deductible starts with how deductions work: they reduce taxable income, while credits reduce the actual tax bill. Some write-offs apply whether or not you itemize, while others require listing detailed expenses on Schedule A and filing them with Form 1040. The right choice depends on your records, totals, and eligibility.

What expenses are deductible?

Common deductible categories include medical and dental expenses that exceed an income threshold, mortgage interest on a qualified residence, certain state and local taxes, and charitable contributions. Retirement contributions to traditional IRAs may be deductible if you qualify, and self-employed health insurance premiums can be deductible. For business owners and freelancers, ordinary and necessary business expenses—such as supplies, software, and professional fees—are typically deductible. Keep in mind that personal, living, or family expenses are not deductible unless a rule specifically allows them.

Standard deduction or itemize (Schedule A)

Every filer can take the standard deduction or choose to itemize on Schedule A with Form 1040. Itemizing makes sense if your deductible expenses—like mortgage interest, state and local taxes (subject to federal limits), and charitable gifts—exceed the standard deduction for your filing status. Medical costs are deductible only to the extent they exceed a percentage of your adjusted gross income. Property taxes and state income or sales taxes combined have an annual federal cap. If your eligible itemized expenses are below the standard deduction, the standard route is generally simpler.

Deductions vs credits

Deductions lower taxable income; credits directly lower tax owed. For example, education credits such as the American Opportunity Credit or the Lifetime Learning Credit can reduce your tax bill if you meet income, enrollment, and expense rules. The Child and Dependent Care Credit may apply to qualifying childcare so you can work or look for work. By contrast, deductions like student loan interest (if eligible) or retirement contributions reduce income before tax is calculated. Understanding whether an item is a deduction or credit helps you plan which documentation to gather and how to report it on Form 1040.

Freelancers: mileage, home office, depreciation

Self-employed taxpayers and freelancers generally report income and expenses on Schedule C with Form 1040. Deductible business expenses can include advertising, internet and phone used for business, professional subscriptions, software, and a portion of business-related travel and meals. Vehicle costs are deductible based on actual expenses or the IRS standard mileage rate, if you keep mileage logs. A qualifying home office used regularly and exclusively for business may be deducted using a simplified method or by allocating actual costs like rent, mortgage interest, utilities, and insurance. Long-lived items such as equipment may be written off through depreciation; Section 179 or bonus depreciation may apply subject to annual limits and eligibility.

Family: childcare, education, healthcare

Childcare used so you can work or look for work may qualify for the Child and Dependent Care Credit when paid to eligible providers and properly documented with receipts. Education costs can qualify for credits tied to tuition and required fees paid to eligible institutions, while student loan interest may be deductible up to annual limits based on income phaseouts. Healthcare deductions generally require that your unreimbursed medical and dental expenses exceed a set percentage of your adjusted gross income and that you itemize on Schedule A. Health Savings Account contributions (when you have a compatible high-deductible health plan) can be an above-the-line deduction, and Flexible Spending Accounts reduce taxable wages when funded through your employer.

Home, charity, retirement, receipts and audits

Home-related deductions typically include mortgage interest on a qualified loan and, for itemizers, state and local property taxes within federal caps. Certain energy-efficient home improvements may qualify for credits. Charitable contributions to qualified organizations are deductible for itemizers; cash gifts require bank records, while noncash donations require fair market value documentation, and larger noncash amounts may call for Form 8283. Retirement savings can be deductible: traditional IRA contributions may be deductible if income and plan coverage rules allow; self-employed plans like SEP IRAs or Solo 401(k)s can offer sizable deductions based on net earnings. Strong recordkeeping—receipts, mileage logs, invoices, and bank statements—helps substantiate claims. Keep organized folders, reconcile totals to your returns, and retain records for the statute of limitations in case of an audit.

Practical recordkeeping and Form 1040 tips

Build a year-round recordkeeping routine: save digital receipts, tag business vs personal transactions, and note the purpose of each expense. For mileage, record date, destination, and business purpose. For home office, keep a floor plan or calculation showing square footage. Reconcile charitable acknowledgments to totals claimed. When preparing Form 1040, include Schedule A only if you itemize, and attach other schedules as needed (for example, Schedule C for freelancers). If you amend or correct returns, keep both original and amended copies along with supporting documents.

Edge cases and limitations to know

Personal commuting costs, clothing suitable for everyday wear, and most fines or penalties are not deductible. Mixed-use items—like a phone used for both personal and business—require reasonable allocation. For education, room and board generally do not qualify for education credits. For home office, occasional or incidental use does not meet the regular and exclusive use test. Some deductions and credits phase out at higher income levels, and certain temporary provisions change over time, so always verify current IRS rules before filing.

Bringing it together

Start by estimating whether the standard deduction or itemizing on Schedule A will produce the lower tax. Then map your year’s deductible categories: healthcare, mortgage interest, charity, retirement, and any business costs if you are a freelancer. Distinguish between deductions and credits, and gather receipts to support each claim. Careful planning and disciplined recordkeeping throughout the year make accurate reporting on Form 1040 more straightforward and help you claim only what is allowed by the IRS.