Some items qualify for tax deductions and many a time taxpayers often forget about them. These items are somewhat overlooked and not considered during tax filing.
The reason for this is that they seem to be lost in the itemized section due to the fact that many taxpayers rather choose standard deductions.
If you are looking for a way to reduce what you pay as tax without doing anything illegal then read this post. All you need is to check with this our list and see those items you have not been paying attention to.
If you discover them, make sure to note them in your next tax filing. Before we look into the deductions, let us first explain the deductions that taxpayers are entitled to which include tax deductions and tax credits.
A Tax Deduction happens to be a deduction that reduces your or an organization’s tax liability by lessening their taxable income.
Deductions are basically expenses incurred by taxpayers during the year. Taxpayers can therefore apply against or subtract the amount from their gross income to discover how much tax is owed. Taxpayers can choose to either take a standard deduction or itemize deductions.
If a taxpayer decides to itemize deductions, then deductions are only taken for any amount above the standard deduction limit. Tax deductions are classified into two which include standard deductions and itemized deductions.
When you hear Tax Credit it is referred to as the amount of money that you, a taxpayer can deduct directly from taxes owed to the government. Tax Credit reduces the actual amount of tax owed.
It is different from tax deduction at this point because tax deduction only reduces the amount of taxable income. The value of the tax credit you get depends solely on the nature of the credit you are given. While some types of the tax credit are approved for individuals others are given to businesses in specific locations, classifications, or industries.
As earlier said, tax credits are more favorable than tax deductions since they actually reduce the tax due from you and not only the amount of taxable income. Tax credits are of three basic types which include Nonrefundable, Refundable, and Partially Refundable tax credit.
Here are our top 10 items you should watch out for in your next tax filing:
Tax Deduction For Charity Donations
You will find this item very important if you are an ardent giver because you will definitely get tax deductions.
However, you need to know also that to qualify you just don’t have to give to anyhow person.
Your donation must be in cash and property to qualified non-profit organizations up to 60% of your adjusted gross income. Remember, documentation is everything hence you need to keep records of your contributions.
Furthermore, if you have any gifts above $250, you must keep records.
Also, if you are taking the standard deduction without itemizing them, you can deduct up to $300 in charitable donations.
Home Mortgage Interest Tax Deduction
Are you a homeowner paying interest on your mortgage?
Do you pay annually up to $750,000 in principal? If your answer is yes to the question then, you might read this part with interest.
When you return your tax, you have the chance of lowering your tax with this deduction. It is based on how much you have paid so far on your home loan.
Child and Dependent Care Tax Credit
This deduction is a tax credit which is a little different from a tax deduction.
As earlier said at the beginning of this post that a tax credit is better than a tax deduction because it reduces your tax bill dollar for dollar.
Hence, if you throw away a tax credit, you lost a great deal compared to a tax deduction.
Taxpayers easily forget to apply for this great item overlook when they pay the child care bills through a reimbursement account at work.
The IRS 2020 provision allows parents to run up to $5,000 of such expenses through a tax-favored reimbursement account.
When you run up to $6,000 in care expenses you qualify for the credit but the $5,000 from a tax-favored account does not qualify.
There are some updates regarding the Child and Dependent Care Tax Credit which can be caught up with on the IRS website.
Student Loan Interest Paid By You Or Someone Else
Once upon a time, when someone, parents, family member, or a friend paid back a student loan incurred by the student, none of them gets a tax break.
The position of the law then was that for you to pay, you must both be liable for the debt and actually pay it yourself. However, that has changed and is no longer like that.
Today, you may know that you might be eligible to take a deduction but even if someone else pays back the loan, the tax authorities treat it as if you were given the money to pay the debt.
Hence, a student who’s not claimed as a dependent then qualifies to deduct up to $2,500 of student loan interest paid by that student or someone else.
Unreimbursed Employee Expenses Deduction
As an employee, if you made some contributions to your employer but were not reimbursed then you are entitled to get a deduction of the expenses.
However, over time, this deduction has become more limited.
Today, this deduction is limited to fee-basis state or local government employees, qualified performing artists, Armed Forces reservists, or employees with impairment-related work expenses.
Earned Income Tax Credit (EITC)
This tax credit is available to lower-income people and they make use of it yearly.
Now, 25% of taxpayers eligible for the EITC usually don’t claim it and have been credited to the complex rules guiding it.
The EITC rules are somehow complicated and this discourages some people from taking it whereas, some don’t take it due to ignorance.
The EITC falls in the category of tax credit and it’s designed to supplement wages for low-to-moderate-income workers.
With the current turn of events, many families have fallen into the low-income category from the middle class.
The factor that causes the shift in class range from job loss to pay cut even reduction in work hours. If you want to take advantage of this credit you must file a tax return even if you are not owing.
Now, if you were eligible in the past but didn’t take it, you can still claim it by filing your tax any time of the year. You can apply for a refund for up to three past tax years.
Gambling Loss Deductions
Since you should report your gambling wins for the year, also, your gambling losses are to be deducted.
It should be known that you cannot deduct losses that are more than your winning amount for that year.
As you know, there is a need to keep accurate records – hence records of your winnings and losses must be kept to help with the deduction.
Furthermore, you may deduct gambling losses on slot machines, table games, bingo, racing, lottery, etc.
Teacher’s Expenses Deduction
If you are an elementary school teacher or secondary school teacher, do you know that you can get a deduction of up to $250 on eligible expenses?
Examples of such expenses include books, supplies, and computer equipment for classrooms.
Health Saving Account Deduction
Do you have a Health Savings Account (HSA)? Do you know that a Health savings account is a crucial benefit for you?
As a taxpayer, you can contribute $3,500 tax-free to your HSA and your families can contribute $7,100.
The implication of this is that you can take care of your medical bills tax-free.
Furthermore, if you have medical expenses of up to 10% of your adjusted gross income, you can deduct that from your tax.
Moving Expenses To Take Up First Job
While the expenses incurred while searching for a job are not deductible, those incurred while relocating to get your first job are. Note that even if you don’t itemize this, you get it a write-off.
If you move more than 50 miles, you are entitled to 23 cents per mile of the cost of getting yourself and your household goods to the new area with all associated costs e.g. parking, tolls, etc.
In 2018, this deductible was taken out of the federal tax list but only available for military personnel and the move must be due to military orders. However, states like California still provide these tax benefits.
Also, Check these out:
Time will fail us to tell you more deductions that are available to you.
There are so many of them you can take advantage of if you qualify.
There is the state sales tax, reinvested dividends, refinancing mortgage points, qualified performing artists deduction, SALT deduction, safe deposit box rent deduction, and many more.
Hence, visit the IRS website to check the long list of items available as tax deductions and those not available for a tax deduction.