Tax deductions are vital in lowering families' taxable income while increasing refunds, but according to the Federal Reserve Bank of Chicago, millions of dollars in tax refunds go unclaimed. 

A lack of organization, missing or incorrectly filed forms, and a lack of understanding of the full scope of deductions are causing families to miss out on potential savings. In this guide, we’ll explain how Trustworthy can help families stay organized and prepared for tax season.  

Key Takeaways 

• Failing to track expenses and keep receipts can result in lost tax deductions for home office expenses, medical costs, charitable donations, state sales taxes, and more.

• Many taxpayers overlook key forms, leading to missed deductions. Creating a checklist and setting reminders can help avoid costly mistakes.

• A lack of awareness about deductions, such as the Earned Income Tax Credit (EITC), mortgage interest deductions, and solar tax credits, results in many families leaving money on the table. 

Reason #1: Lack of Organization and Expense Tracking

Something as simple as a lack of organization and not keeping track of your expenses can potentially cause you to lose out on savings. Documents scattered everywhere can make it difficult to see what documents you have and don’t have. 

Commonly Overlooked Expenses 

Many people don’t file federal income tax returns if they’re not legally required to. However, even if you earn below the threshold, you can still file to claim money back from certain expenses — as long as you’ve kept track of them.

Home office expenses: If you work from a home office, you can deduct a portion of your rent, mortgage, and utilities. Other deductible expenses include stationery, insurance, and equipment. Be sure to keep records of these costs as proof at tax time.

Medical expenses: If your medical expenses exceed 7.5% of your adjusted gross income and haven’t been reimbursed by insurance, you may qualify for a tax deduction.

According to the IRS, deductible medical expenses typically include payments to medical practitioners, inpatient and nursing home care, prescription medications, medical equipment, and certain general health and nutrition costs.

Charitable donations: Doing good deeds can save you money. Donations to charities — as well as certain related expenses, like buying ingredients to prepare food at a nonprofit — may be deductible. If you drove to the charity, you can deduct the mileage.

State sales tax: If you live in a state without income tax, you can claim a sales tax deduction. For example, if you made big-ticket purchases like a boat, vehicle, or home, you can deduct the sales tax using the IRS sales tax calculator.

Moving expenses: This deduction applies only to active-duty military personnel. Qualifying expenses include travel, moving household goods, shipping vehicles, and lodging for your family.

Health insurance premiums: If you’re self-employed, you may qualify to deduct 100% of your health insurance premium costs.

Tips for Organizing Receipts and Tracking Expenses Year-Round

Preparing year-round — not just a few days before your tax return is due — is the key to a smooth and stress-free tax filing season. Here are some of our best tips for staying organized. 

File receipts immediately: It is good practice to file your receipts and expenses away as soon as you receive them. Leaving them to grow in a pile on your counter is a surefire way to lose documents and your motivation to sort them out. 

Regular updates: Don’t leave organizing your receipts until the last minute, and don’t make it a once-a-year task. Schedule regular updates to review your information for outdated or missing information. 

Organize receipts into categories: File them in categories such as medical, financial, real estate, and business to keep them organized and easy to find. 

Use financial software: Financial management software can help track your expenses and identify possible deductions.  

Use digital storage: Say goodbye to endless piles of paperwork and use digital storage tools to instantly scan and securely store your important tax documents. 

We recommend Trustworthy. Trustworthy's Family Operating System® is a digital family vault designed to help families get and stay organized all year round. Maintain your financial records with Trustworthy’s Autopilot feature, which has tools like predefined categories so you don’t have to create a filing system from scratch. 

The document insights summaries and filename suggestions make organizing your tax documents hassle-free, and the smart search feature allows instant access when needed. 

Trustworthy’s versatile mobile app has a built-in scanner for instant document uploading and storage. The Chrome extension adds another level of accessibility, allowing users to add files, save email attachments, and effortlessly capture screenshots. 

Not only does Trustworthy make filing documents seamless, but it also gives families peace of mind that their information is safe with bank-level security measures. Trustworthy uses advanced security features, such as AES 256-bit encryption, multi-factor authentication, biometric authentication, physical security keys, advanced threat detection, and tokenization. 

Reason #2: Missing or Incorrectly Filing Important Forms

Failing to file the correct tax forms or submit essential documents can result in missed deductions and credits for child care and education. These mistakes often stem from poor organization or lack of awareness.

Commonly Overlooked Tax Forms

Form 2441: This form is used to claim from the Child and Dependent Care Credit, which allows taxpayers to claim up to $8,000 for one qualifying person.

Form 8863: This form is used for education tax credits like the Lifetime Learning Credit and the American Opportunity Credit.   

Form 8880: This form is used to claim the saver’s credit for any contributions to retirement plans. 

Knowing what forms to use can help lower your family's tax liability and save you money. 

How to Stay on Top of Forms and Deadlines

Avoid the headache of missing and incorrectly filled out forms by: 

Creating a checklist: Create a personalized checklist of all your important tax documents. You can organize this checklist into different categories according to when documents are due or their importance. Remember to check off your list as you complete tasks to be aware of missing documents. 

Setting reminders: Missing tax deadlines can result in costly penalties and missed refunds, which can be avoided by setting reminders. 

Consult with tax professionals: It’s always a good idea to check with tax advisors if you’re unsure what documents you need to fill out, whether you qualify for a certain deduction, or if you have any other questions.

Stay on top of your tax preparedness with Trustworthy. Use the automated smart reminders for upcoming deadlines and ensure you have all the relevant documents ready to file. If you need extra assistance, a Trustworthy Certified Expert™ can help you connect with professionals like tax advisors and accountants. 

• Related: Lost an Important Tax Document? What to Do Now

Reason #3: Not Understanding the Full Scope of Available Deductions

The third reason many families miss out on tax deductions is they don't understand the full scope of available deductions. One of the most overlooked tax deductions is the Earned Income Tax Credit (EITC), available to low-income taxpayers. However, many low-income families earn below the tax threshold, so they don’t file tax returns and miss out on substantial savings. 

According to the Federal Reserve Bank of Chicago, around 22% of eligible families fail to claim the EITC. 

The reason for this? The Federal Reserve Bank of Chicago wrote, “Research suggests these barriers include a lack of awareness of the credit or the amount they are eligible for, a desire to avoid a complex and burdensome tax-filing process, a distrust of government, or a desire to avoid any stigma associated with receiving tax credits.” 

Common Misconceptions About Deductions

One of the biggest reasons Americans don’t claim eligible deductions is they have incorrect information. 

State taxes: Taxpayers can deduct up to $10,000 for a combination of state and local income, sales, and property taxes through the SALT deduction. 

Mortgage interest: Paying interest on your mortgage? That interest is considered deductible and can be used to lower your taxable income.

Earning under tax threshold: There’s a common misconception that if you aren’t legally required to file a tax return, you don’t qualify for tax credits, but this is wrong. You must still file to claim EITC and the child tax credit (CTC). 

Child tax credit: Families with children below 17 can receive a tax credit of up to $2,000 per child. 

Child and dependent care credit: This tax credit also extends to people covering care costs for their spouse or parent. It is up to 35% of $3,000 in expenses for one dependent.  

Solar tax credit: If you have had solar energy installed, the residential clean energy credit can get up to a 30% refund for those costs. 

You must research all the potential deductions specific to your situation and contact a tax professional to maximize the available deductions. When working with a tax advisor, you’re likely to need to share your tax documents, and it’s vital to do this securely. 

With Trustworthy, collaboration is made safe and easy. You create your network of trusted collaborators like family members and tax advisors to instantly share your stored documents and set what kind of access they have. 

Share your tax documents securely with people outside your network using the SecureLinks™ feature. This tool lets you create unique, view-only links with control over how long they’re valid, giving you complete control over your sensitive information. 

Get Prepared for Tax Season With Trustworthy 

Disorganization during tax filing season can result in delayed or missed refunds, which can be avoided by using Trustworthy. Trustworthy simplifies the process of filing taxes by helping you keep track of what documents are needed and filing the correct forms so you can maximize your family’s deductions. 

You can begin organizing your family’s financial documents today with Trustworthy to avoid missing out on potential tax savings in the future. Get started with Trustworthy for free.

Frequently Asked Questions  

What are some lesser-known tax deductions that families might not be aware of?

Some lesser-known tax deductions families may benefit from are teacher expenses of up to $300 per classroom and jury duty pay given to an employer. 

How far back can I claim missed tax deductions?

You can claim missed deductions using form 1040-X for up to three years from filing the original return. 

Are there deductions for families who pay for private school tuition?

While private school tuition is not tax-deductible, families can deduct tuition expenses if the school provides special education services for a medical condition. In this case, you will need a physician referral.