common tax deductions

Know Your Common Tax Deductions – What Are They?

Posted on

Know Your Common Tax Deductions – What Are They? As a good citizen who lives in a certain nation, you must pay taxes accordingly. The good news is that you can take advantage of various common tax deductions on your taxes each year. These deductions help you pay a lower amount of taxes and in some cases, get a refund from the IRS. Do you know there are many types of common write-offs that you can claim? These include deductions and tax credits. By learning their variation, you can start qualifying them.

common tax deductions

Also read : Business Tax Preparation 101 – Basic Knowledge to Prepare Annual Business Tax

Common Tax Deductions You Should Not Ignore

Many write-offs are available for you to claim. Some are quite important while others are often overlooked. So, here are several tax deductions that you should never ignore:

Lifetime Learning Credit

The LLC allows you to take credits for taking classes at a university, community college, or other institutions. You can claim a deduction of up to $10,000 for a lifetime duration. One thing, you are allowed to take a credit of $2000 per tax return.

Mortgage interests

If you have mortgage interest to pay, you can deduct it either. The limit of the interest is around $750,000 for a single person and $375,000 each for a married couple. If you have a mortgage that is bigger than that number, you cannot get any deduction on the interest.

States taxes paid

The deduction also applies to paid state income taxes. The limit is up to $10,000 and it includes all deductible local and state taxes. Make sure to check your common tax deductions qualification first before claiming.

Property deductions

What does it mean? You are eligible to deduct mortgage interest, mortgage insurance premiums, and property taxes that you paid that year for your house.

Property taxes

As the name suggests, you may qualify for deductions related to your property taxes. However, you should follow your government’s ruler regarding this benefit. According to TCJA, the limit of deductions would be around $10,000.

Charitable contributions

You can deduct any cash charitable contributions up to 60% of your AGI. The thing is charitable contributions also cover donations of property and items. Even if you don’t itemize, you can take a deduction of up to $300 for a single person and up to $600 for a married couple.

Medical disbursement

You can deduct your trip for medical purposes including driving to a hospital or meeting a doctor. The deduction is 16 cents per mile. Is that all? You can also deduct medical and dental expenses that are more than 7.5% of your Adjusted Gross Income if you file Form 1040.

Relocating expenses

Claiming common tax deductions on moving expenses is only available for military personnel. If you are a member of the active-duty military who is relocating, you are eligible for this type of deduction. One thing, this relocating should be permanent and it should be based on the military’s order.

Volunteers

Are you the type of person who loves to donate your free time to help others? Volunteering often costs both time and money. The good news is that you can include these expenses in your charitable deductions. For example, you can deduct your travel expense that is made for the sake of charity.

Retirement credits

Any contributions you make to a retirement plan provide you with a tax credit. The amount depends on the AGI that you include on Form 1040. However, any rollover contributions won’t qualify.

IRA contributions

Your contributions to a common IRA are deductible and the maximum amount is $6000. If you are 50 years old or more, you can get an extra limit of $1000 of common tax deductions.

Student loan interest

Any interest you pay on a student loan is tax-deductible and the maximum amount of deduction is $2500. You won’t qualify it if your AGI is more than $80,000 (single) or $165,000 (married couple).

Also read : Getting to Know a CPA Tax Preparer and Why You Need It

Learning How Tax Deductions Work

To understand better common tax deductions, you should know how they work. This term refers to any expenditures that you can use to reduce or deduct your taxable income. Let’s take a simple example. If your AGI is $80,000 and you have around $25,000 in numerous types of common tax deductions, you can use them to deduct your taxable income to $55,000.

Some of you might be confused with a tax credit and tax deduction. These two are different. A deduction works by reducing your taxable income, while a tax credit deducts the amount of tax you need to pay to the IRS. Simply said, tax credits are included in your tax bill after calculating your federal income tax.

As for the deductions, there are standard and itemized common tax deductions. You also need to learn the difference between them. As a citizen of the United States, you can choose either the standard or itemized deductions. Itemizing means a process of finding out and compiling all of your deductible expenses. As for the standard deduction, it is a fixed amount that you can choose to deduct from your income. It doesn’t depend on the number of deductible expenses you included in the current year. Both methods are good, so you can pick one based on your need.

In terms of popularity, the standard deductions have more fans than itemized deductions. Due to the Tax Cuts and Job Act, this method offers a higher amount of taxable income deduction and a simpler procedure to follow.

As for itemized deductions, you need to keep track of your qualifying common tax deductions in that current year. Not to mention you should fill out more paperwork and preserve all the information. The purpose is to get prepared for an audit in the future.

Aside from tax deductions and tax credits, you may find tax exemptions. This one either reduces or eliminates your obligation to pay taxes. This remains available until at least 2025 and might overlap with some tax deductions because both of them reduce your taxable income. The perfect example of tax exemption is the municipal bond or unemployment compensation.

Also read : Things to Know about Daycare Tax Deduction: Requirements and Trivia

Verdict

All people have a chance to claim common tax deductions regardless of their job, age, and other details. What you need to do is to learn the types and how to calculate those deductible taxes. Working with a professional is recommended because you can simplify the process.

Leave a Reply

Your email address will not be published. Required fields are marked *