What Expenses May Be Tax Deductible In 2025

As tax season approaches, understanding which expenses you can deduct is one of the most effective ways to lower your taxable income and, consequently, your tax bill. Tax deductions reduce the amount of your income that is subject to tax. For the 2025 tax year (the return you'll file in 2026), several key deductions are available to individuals, families, and business owners. Navigating these can be complex, but knowing the basics can empower you to make smarter financial decisions throughout the year.

It's crucial to remember that you can either take the standard deduction—a fixed dollar amount determined by your filing status—or itemize your deductions, which involves adding up all your individual eligible expenses. You should choose the method that results in a larger deduction. Below is a comprehensive guide to some of the most common and significant expenses that may be tax-deductible in 2025.

Common Tax Deductions for Individuals and Families

1. State and Local Taxes (SALT)

The State and Local Tax (SALT) deduction is a significant one for many taxpayers, but it comes with a major limitation. You can deduct a combination of property taxes and either state income taxes or sales taxes, but the total amount you can claim is capped at $10,000 per household per year ($5,000 if married filing separately). This cap has made itemizing less beneficial for many people, especially those in high-tax states.

When choosing between deducting income or sales tax, you should calculate which one provides a greater benefit. If you live in a state with no income tax, deducting sales tax is the obvious choice. The IRS provides tables to help you estimate your state and local sales tax deduction, or you can use your actual receipts if you made large purchases, such as a car or boat, during the year.

2. Charitable Contributions

Giving back to qualified charitable organizations can also give you a tax break. To claim this deduction, you must itemize. You can generally deduct cash contributions up to 60% of your adjusted gross income (AGI). This includes donations made via cash, check, credit card, or payroll deduction. For donations of property, such as clothing or furniture to a thrift store, you can deduct the fair market value of the items.

Proper documentation is essential for charitable deductions. For any cash donation under $250, a bank record or a written communication from the charity is usually sufficient. For any single contribution of $250 or more, you must have a written acknowledgment from the organization that details the amount of the donation and whether you received any goods or services in return.

3. Medical and Dental Expenses

You can deduct the amount of qualifying medical and dental expenses that exceeds 7.5% of your adjusted gross income (AGI). This high threshold means not everyone can claim it, but it can be very valuable for those with significant healthcare costs. Qualifying expenses are broad and include payments to doctors, dentists, surgeons, and other medical practitioners.

Other eligible costs include prescription medications, insulin, medical equipment like crutches or wheelchairs, and even payments for transportation primarily for and essential to medical care. The cost of health insurance premiums may also be included if they are paid with after-tax dollars and not through an employer-sponsored, pre-tax plan.

4. Mortgage Interest

For homeowners, the mortgage interest deduction can be one of the largest available. Taxpayers can deduct the interest paid on a mortgage used to buy, build, or substantially improve a primary or second home. For mortgages taken out after December 15, 2017, the interest on a total mortgage debt up to $750,000 is deductible ($375,000 if married filing separately).

In addition to standard mortgage interest, you may also be able to deduct points paid at closing to secure a lower interest rate. These points must generally be amortized and deducted over the life of the loan. Premiums for private mortgage insurance (PMI) may also be deductible, depending on your income and when the policy was issued.

5. Student Loan Interest

If you are paying back student loans, you may be able to deduct the interest you paid during the year. You can deduct the lesser of $2,500 or the actual amount of interest you paid. This is an "above-the-line" deduction, meaning you do not need to itemize your deductions to claim it.

However, there are income limitations. The deduction begins to phase out for taxpayers with a modified adjusted gross income (MAGI) above a certain threshold, which is adjusted annually for inflation. This deduction is available for interest paid on loans used for higher education expenses for yourself, your spouse, or a dependent.

Key Deductions for the Self-Employed and Business Owners

6. Home Office Deduction

If you use a portion of your home exclusively and regularly for your trade or business, you may be able to claim the home office deduction. There are two ways to calculate this: the simplified method and the actual expense method. The simplified method allows you to deduct $5 per square foot of home office space, up to a maximum of 300 square feet.

The actual expense method is more complex but can result in a larger deduction. It involves tracking all direct expenses (like painting the office) and a percentage of indirect expenses (like mortgage interest, utilities, and insurance) based on the percentage of your home used for business. The "exclusive use" test is strict—the space must be used only for business, not as a mixed-use family room.

7. Qualified Business Income (QBI) Deduction

Also known as the Section 199A deduction, the QBI deduction allows eligible self-employed individuals and small-business owners to deduct up to 20% of their qualified business income. This applies to owners of pass-through businesses, including sole proprietorships, partnerships, S corporations, and some trusts and estates.

The rules for the QBI deduction are complex and depend on your taxable income and the nature of your business. For those with income above certain thresholds, the deduction may be limited based on the W-2 wages paid by the business and the unadjusted basis of qualified property. Certain types of service businesses (in fields like health, law, and consulting) face tighter restrictions.

Understanding the Difference: Standard vs. Itemized Deductions

One of the first decisions a taxpayer must make when preparing their return is whether to take the standard deduction or to itemize. This choice is fundamental to your tax strategy and can significantly impact the amount of tax you owe. The standard deduction is a specific dollar amount that you can subtract from your AGI, and it varies based on your filing status (single, married filing jointly, etc.), age, and whether you are blind.

Itemizing, on the other hand, involves listing out all your individual deductible expenses, such as the SALT deduction, mortgage interest, medical expenses, and charitable contributions. You would choose to itemize only if the total of your itemized deductions is greater than the standard deduction for your filing status. Since the Tax Cuts and Jobs Act of 2017 nearly doubled the standard deduction, the vast majority of taxpayers now find it more advantageous to take the standard deduction rather than itemizing.

To make the right choice, you should add up all your potential itemized deductions for the year. If that total is less than your standard deduction amount, you should take the standard deduction. If your total is higher, itemizing will likely save you more money. It's a simple calculation that can make a big difference.

Frequently Asked Questions About Tax Deductions

What Records Do I Need to Keep for Tax Deductions?

Meticulous record-keeping is the cornerstone of successfully claiming tax deductions. Without proper documentation, you risk having your deductions disallowed if you are ever audited by the IRS. The types of records you need to keep depend on the deductions you plan to claim, but the principle is the same: you must be able to prove the expense and its purpose.

For most expenses, you should keep receipts, invoices, and cancelled checks or bank/credit card statements. For business use of a car, a detailed mileage log showing the date, purpose, and miles for each business trip is crucial. For charitable contributions, you need acknowledgments from the charity, especially for larger donations. It's wise to digitize these records by scanning them and storing them in the cloud to prevent loss from damage or fading.

The general rule is to keep tax records for at least three years from the date you filed your original return or two years from the date you paid the tax, whichever is later. However, it's often recommended to keep them for up to seven years, as there are certain situations where the IRS can look back further.

Can I Deduct Expenses If I'm a W-2 Employee?

This is a common point of confusion. Prior to the tax law changes in 2018, W-2 employees could deduct a range of unreimbursed employee expenses as miscellaneous itemized deductions. This included things like work-related travel, uniforms, union dues, and home office use. However, the Tax Cuts and Jobs Act (TCJA) eliminated this deduction for most taxpayers from 2018 through 2025.

This means that if you are a typical W-2 employee, you can no longer deduct the cost of a home office, work supplies you buy yourself, or other job-related expenses on your federal tax return. While this was a significant change, there are a few exceptions. Certain categories of employees can still deduct unreimbursed work-related expenses. These include Armed Forces reservists, qualified performing artists, fee-basis state or local government officials, and employees with impairment-related work expenses.

Final Thoughts on 2025 Tax Deductions

Understanding potential tax deductions is a powerful tool for managing your financial health. By keeping track of eligible expenses throughout the year, you can maximize your deductions and lower your overall tax burden. From homeowner expenses and charitable giving to the specific deductions available for the self-employed, each one offers an opportunity to reduce your taxable income.

Because tax laws are complex and can change, it's always a good practice to stay informed or consult with a qualified tax professional. They can provide personalized advice based on your unique financial situation and help ensure you are claiming all the deductions to which you are entitled correctly and legally.

For more official information, you can visit the following resources:

• IRS Credits and Deductions for Individuals
• IRS Publication 529, Miscellaneous Deductions