What Things Can I Deduct On My Taxes – Ever seen a social media post asking you to make a tax-deductible contribution to charity? (Hopefully it was a legitimate one and not George Costanza’s Human Fund.) Or maybe you had a conversation with your dad about tax write-offs for mortgage interest and your eyes glazed over. We’ve been there too! (Sorry dad).
Many people don’t know what tax deductions are available or how to report them on their tax returns. But you don’t want to be that guy or gal because it could mean leaving a big chunk of money in the hands of the tax authorities without you even knowing!
What Things Can I Deduct On My Taxes
Simply put, a tax deduction is an expense that can be subtracted from your income to reduce the amount you pay in taxes. Tax deductions are a good thing because they reduce your taxable income, which also reduces your tax bill. They can help you shave hundreds, maybe even thousands, of dollars off your tax bill.
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For example, donations to charities are one of the most common tax deductions. This means you can ‘write off’ the money you gave to charity last year and reduce your taxable income by the amount you gave.
So if your income is $50,000 and you gave a $1,000 gift to your favorite charity last year, you can claim that gift as a tax deduction and only be taxed on $49,000 instead of $50,000.
Tax bill by exactly $1,000. A tax deduction is not that simple. If you get a $1,000 tax deduction and you fall into the 22% tax bracket, that deduction will reduce your taxable income and save you $220 when it’s all said and done.
Tax credit of $500, but only owes $200 in taxes, the IRS will send you a check for $300. On the other hand, if you have a
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The standard deduction is an amount set by the IRS each year, and it’s the easy option: It’s like an automatic tax exemption. If you choose to take the standard deduction, your taxable income is automatically reduced by a fixed amount based on your filing status (such as single, married filing jointly, or married filing separately). That reduces the amount of taxes you have to pay. You no longer have to dig through receipts or bank statements to find your deductions.
Itemizing your deductions takes more work. You must list all the deductions you want to claim one by one. And you’ll need to fill out a Schedule A form with your tax return and save your information to back up your claims.
Yes, itemizing is a bit of a hassle, but it’s worth it if you can claim enough deductions to reduce your taxable income more than the standard deduction.
How do you know which option suits you best? There are a few things you should know before making a decision this year.
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Thanks to the 2018 tax reform law, the standard deduction has nearly doubled from before. That’s great news for many taxpayers! For the 2022 tax year, the standard deduction has been slightly adjusted for inflation. So if you are single, the standard deduction is now $12,950. Married and filing a tax return together? Your standard deduction is $25,900. These numbers will continue to rise in 2023.
If you or your spouse are over 65 or legally blind, you may be able to receive a higher standard deduction. But if you are a nonresident alien or a dual-status alien, or someone else claims you are dependent on his or her return, your standard deduction may be lower.
Write off your taxes. Here are some of the most common deductions that many taxpayers can take advantage of:
The more you give, the more you can deduct from your taxes! If you itemize your deductions, any money you’ve given to your church, your alma mater, or your favorite charities can all be written off on your taxes. You can deduct any amount of charitable donations up to 60% of your taxable income.
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Congress passed a 2021 spending package that allowed anyone who took the standard deduction to take an “above the line” deduction on charitable gifts of up to $300 for individuals and up to $600 for married couples filing jointly.
Do you have health insurance, but still pay your own medical or dental costs? The IRS allows you to deduct medical expenses that exceed 7.5% of your taxable income for things like appointments with medical professionals or dentists, prescription drugs, contact lenses or eyeglasses, and health insurance premiums (paid with after-tax dollars and not reimbursed by your employer), to name just a few!
To break it down, if your adjusted gross income is $50,000, then 7.5% of that is $3,750. So if you have $5,000 in medical expenses that
Covered by your health insurance, subtract the $3,750 from that and get $1,250 as a tax deduction.
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To deduct your state and local sales tax or income tax, along with some foreign taxes. If you live in a state that doesn’t have an income tax or if you’ve made major purchases like a new car or a furniture set for the living room, the sales tax deduction is the way to go. To calculate your deduction, check out the IRS Sales Tax Deduction Calculator. And if you’re a homeowner, you can also deduct property taxes from your tax bill.
The Tax Cuts and Jobs Act, passed in 2018, limits the total amount you can deduct in income, sales and property taxes to $10,000.
Interest paid on your student loans (up to $2,500) is one of the rare deductions you can make, even if you don’t itemize it.
However, because the Department of Education has suspended student loan payments and interest through June 30, 2023, there are no student loan interest charges to claim at this time (unless you have taken out private loans, in which case you can claim the lesser of $ Deduct €2.500 or the amount of interest you actually paid during the year).
What Is The Standard Deduction?
But don’t let that stop you from paying off your student loans! When payments and interest are paused, that’s the best time to intensify Gazelle and pay off your student loans faster.
Ah, the joys of home ownership! There’s the big backyard, the white picket fence, your mortgage payments. . . Okay, maybe not that last part. But you can at least deduct the interest you paid on a mortgage debt of up to € 750,000.
If you happen to have a traditional IRA, these contributions are most likely tax deductible. But your deduction may be limited based on your income and whether or not you (or your spouse if married) have a retirement plan through your workplace.
But here’s the catch: You have to pay taxes on the money you take out of your traditional IRA in retirement.
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That’s why we recommend investing with a Roth IRA instead. Roth IRAs are funded with taxable income. You can’t deduct Roth contributions from your taxes now, but who cares? You’ll be too busy enjoying yourself
If you’ve turned part of your home into your own workspace that’s used only for business purposes, you can write off work-related expenses such as rent, utilities, and maintenance costs.
It may take some extra measuring and calculations as you prepare to file your taxes, but it will be worth it if you qualify for this deduction!
Here’s the deal: Taking that automatic standard deduction makes sense for most taxpayers. But it’s still important to total your itemized deductions before making that decision.
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Take Linda and Eric, for example. They are married and filed jointly, so they automatically qualify for the $25,900 standard deduction and they are excited about that huge amount!
But just to be sure, they go through their records to find all the tax deductions they can claim if they choose to itemize. Would they save money that way?
After adding up their itemized deductions, they see that they can deduct more than $27,000 from their taxable income, potentially saving hundreds of dollars in taxes.
Do you think Linda and Eric regret going through all their receipts, files and bank statements? No chance!
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Meet Shawn. He is a single man who has just started his career. He works crazy hours at his accounting job and rents a small apartment while he tries to work through his debt snowball. Because he doesn’t have to deduct as many expenses, the standard deduction offers a much greater tax benefit than itemizing. That’s a no-brainer!
When it comes to taxes, everyone’s situation is different. There is no one-size-fits-all solution! If you are a homeowner or business owner, have made a lot of charitable contributions, or have paid out of pocket for high medical costs, then itemizing may be the best move for you.
Affordable to pay your taxes, without hidden fees. That’s what we call a win-win! What it comes down to? You want to make sure you get the most out of all these tax deductions. Learn how to keep more of it
If you are in doubt, it is best to contact a tax advisor. With years of experience behind them, their wealth of knowledge can take the guesswork out of taxes and protect you and your wallet.
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