When it comes to taxes, we all know how stressful it can be just sorting out what you even need to pay. But there is a way for you to lower that stress and save money as well, and yes, we are talking about tax deductions. Many people aren’t even aware of all the possible deductions, but we believe that these deductions should be common knowledge, and that’s where this article comes in. Here, we have listed some of the tax deductions that, if applicable to your situation, can greatly help you when it comes to taxes!
First Things First
Now before we even begin listing the possible deductions, let’s talk about the basics regarding tax deductions, in case you are not so familiar with them. So, what are tax deductions? It’s pretty simple – basically, a tax deduction lowers your taxable income hence reducing your tax liability. What you need to do is to subtract the amount of the tax deduction from your income, and that makes your taxable income lower, and, lower your taxable income, the lower your tax bill.
What About Tax Credits?
A tax credit is a straightforward reduction in your actual tax bill. Not a lot of credits are refundable though, but those that are, you can do the following – say you owe $300 in taxes but qualify for a $1,000 credit. In that case, you’ll get a check for the difference of $700.
How Can You Claim Tax Deductions?
When it comes to different ways to claim tax deductions, there are generally two options. You have to choose only one regarding each tax deduction, but to be able to even decide on which one, let’s explain the options.
Standard Deductions
This is the simplest option that there is, and basically, it’s a deduction in your adjusted gross income based on your filing status. So, the amount deducted differs if you are single, married if you are filing taxes separately from your partner or not. If you are over 65 years old, the standard deduction is bigger.
Itemized Deductions
This is a completely different option than the last one since it’s not treating the whole taxes as a one, but you get to cut your taxable income by taking any of the hundreds of available tax deductions that you qualify for.
Now that we have covered the basics, let’s get to the part where we talk about the actual deduction options!
Home Office Deductions
Do you work from home? If you do, this deduction can be a big money saver if you use a part of your home regularly, and exclusively for business. As experts on home office deduction explain, you don’t need to have a sector of your home dedicated to the business, even a desk count. Basically, all details aside, if you work from home – IRS allows you to write off associated rent, utilities, real estate taxes, repairs, maintenance, as well as other related expenses from your taxes.
Charitable Donations Deductions
Did you know that you can deduct money for goods given to charitable organizations, as well as out of pocket expenses for charitable work? Basically, if you itemize your deductions, you are able to subtract the value of individual items. On the other hand, if you opt for the standard deduction, you will be able to deduct around $300, based on the factors discussed earlier.
Lifetime Learning Credit
You are probably familiar with the fact that the tax code offers a number of different deductions options regarding college students, as well as those regarding ones that have already graduated. The great thing with lifetime learning credit is the fact that, unlike many other options, it doesn’t discriminate based on your age. So, what does the lifetime learning credit do? Basically, it can provide up to $2,000 per year, taking off 20% of the first $10,000 you spend for education after high school while you are trying to increase your education.
401(k) Contribution Deductions
A 401(k) plan is great for many different reasons, one of them being that it’s a highly efficient way to accumulate financial resources for retirement, but there are also some tax benefits that come with this plan. The thing is, the IRS isn’t going to tax what you divert into a 401(k) if it’s directly from your paycheck. For 2020, you can divert up to $19,500 per year into your 401(k) account, and if you’re 50 or older, you can contribute even up to $26,000. In most cases, these retirement accounts are usually sponsored by employers, but self-employed people can open their own 401(k)s as well.
Self-Employment Taxes Deduction
There are some great things that come with being self-employed, the first one probably being all the freedom and customizability when it comes to organizing your work. That being said, there are some cons about being self-employed as well – you have to pay 15.3% of your income for social security and medicare taxes, in contrast with regularly employed situations where the portions are ordinarily paid by both employee and employer. There is a tax deduction that can be a small consolation though – you get to deduct the 7.65% employer portion off your income taxes.
Gambling Loss Deduction
Many people have never heard of gambling deductions since it’s a pretty unusual thing to be able to deduct from taxes. Nevertheless, it can be done – gambling losses and expenses are deductible but only to the extent of your winnings. That being said, spending $200 on lottery tickets isn’t deductible by itself, but if you win and report it. That way, you can deduct the gambling expenses, but no more than the amount you win.
Tax Deductions For Teachers
It’s common knowledge that many teachers have to reach into their own pockets every now in order to purchase different items necessary for the classroom. While it can sometimes seem like nobody appreciates that gesture, it isn’t like that. In fact, the IRS does allow qualified K-12 educators to deduct up to $250 for materials that they have bought. And in case you don’t itemize, don’t worry – the amount in question gets subtracted from your income.
After you have finished the article, you have probably realized that there are a lot more options when it comes to saving money through tax deductions that you have been aware of – and there are a lot more different deductions that you can make! It all comes down to doing research and taking the time to look for these options, and then taking action and claiming those deductions!
