by Claudius Woods
With more than 140 million Americans filing taxes every year, it can be a stressful job for the IRS to evaluate the documents. But, more than the IRS, an average US citizen finds it difficult to file for the taxes. If you are in the same boat, it means you are not calculating and sorting your taxes in the right way. When done with the right pieces of information and guidance, tax filing can be way more comfortable.
You might be wondering if it really makes a difference. Yes, it does! If you are well aware of the tidbits that can help you file your taxes more conveniently and simply, it would be much easier. Additionally, knowing about your tax deductions and reductions can also help you save money on your taxes. Here's is a detailed guide on tax deductions and how to save some bucks.
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A tax deduction is an exemption of some amount from taxes. It helps to lower the tax payer's liability to taxes by decreasing the taxable income. The taxable or adjusted gross income can be reduced by applying any expenses that can be subtracted from the AGI. The deductions can be taken advantage of, by using the codes federally or on the state level.
Both the standard and itemized deductions can be utilized while you are thinking of tax deductions. Standard deductions are a standardized amount that varies on the federal and state level. The standard deduction by the federal government varies yearly, and it also depends on the tax payer's history. However, standard tax deductions are a more straightforward option as you do not have to do any calculations. When opting for standard deductions, you just have to select and file it without any extra calculations on your part.
Whereas itemized tax deductions are a bit time consuming, yet they would be great for those with major expenses. These expenses can include a house, retirement funds, medical expenses, or other job-related expenses. To put it quickly, itemized deductions can be a good idea for you if you
Other than the standard and itemized deductions, some other tax deductions are often overlooked. But, if you take care of those, you might be able to reduce your payable taxes. Some of the common and uncommon tax deductions include
It is recommended to study your taxes properly first and then decide the right kind of tax deduction between Standard and Itemized deductions.
You might find calculating your taxes difficult, but it is quite easy when it comes to tax deductions. The government revises its tax deductions every year. The tax deductions that can be claimed in 2023 for the year 2019 are as follows
These values are expected to increase in the coming years making them
The fore-mentioned rates are for standard deductions only. Those who are inclined towards itemized deductions would need to calculate the deductions.
Now, we have talked about tax deduction basics quite in detail, let's also tell you about tax exemptions. Tax Exemptions have been an excellent way of reducing your taxes in the past. Every dependent on your claim would receive $4,050. It means that having four dependents on you would make an exemption of $20,200 along with your standard/ itemized deductions. However, this was applicable until the Tax Cuts and Jobs Act was passed in 2017, which omitted tax exemptions in the coming years. It is said that the standard tax deductions have increased to make up for the omitted tax exemptions.
The Tax Cuts and Jobs Act did not only alter the tax deductions by excluding tax exemptions, but it has made other significant changes as well. These changes might aid in increasing your tax deductions too. Let's have a look at the possible tax deductions you can avail of in 2023.
The Earned Income Tax Credit (EITC) is a commendable offering by the government. EITC is exclusively for those who make low-to-moderate-income. Government issues letters to all those who are eligible for the EITC, and they receive tax deductions that aid in reducing their payable taxes.
The American Opportunity Tax Deduction can be claimed by undergraduates or their parents for up to 4 years. If you are an undergraduate student and you have paid $2,000 as your tuition fee and books, you can get a $2,500 tax deduction owing to the $2,000 spent and 25% of the next $2,000. This means that you would have to pay only $500 to the IRS if you are liable to a $3,000 tax.
American Opportunity Tax Deduction is considered to be the best tax deduction for students as they can claim 40% of the total amount regardless of no income or taxes to pay.
The other education tax deduction offered by the IRS is Lifetime Learning Credit. The one major advantage of Lifetime Learning credit is that it does not have any educational restrictions. You can be an undergraduate, graduate, or a skill learner, yet be eligible for the tax deductions. One limitation applicable to both educational deductions is that the cost of living and transport is not susceptible to a tax deduction.
A maximum tax deduction of$2,000 is offered as 20% of the first $10,000 you paid in 2019 as the fee. However, unlike the American Opportunity Tax Deduction, you are not eligible to receive any amount of your taxable income comes to zero after the deduction. Make sure to utilize the Lifetime Learning Credit adequately as it can be availed throughout life anytime for your educational expenses.
You can be liable to Medical Expenses Deductions if you have paid your health expenses even with medical insurance. As long as the total amount surpasses 7.5% of your AGI, you can deduct this amount. Usually, considerable medical expenses include
Due to the changes in tax laws in 2017, a refundable $2,000 Child Tax Credit is offered to the parents. You can claim for any child that is under 17 years of age and claimed as a dependent on your tax return. The kid could be your
Child and dependent care credit can make you get up to 35% of $3,000 of child care as tax deductions. Not only children under 13 are eligible for this credit, but an immobilized spouse or parent can also get the dependent care credit. This tax deduction is offered as the disability of any family member can be troublesome for your work. Keep in mind that the Child and Dependent Care Credit is less for high earners as compared to those with low income. However, the deduction is not omitted entirely whatsoever.
With the increasing freelance market and entrepreneurship worldwide, the taxpayers of America also get relief if they are using their house to earn a living. There are two ways you can use to avail tax deductions for your home-based office.
The tax deduction can also be applicable to house mortgage or rent, or any repairs in the house that might affect the business directly.
It is not a very commonly claimed tax deduction, yet it can help you save some bucks. If you have hired a baby sitter while you are out at work or studying full time, this amount can be omitted from your taxable income. It means that you would not have to add it to the itemized deductions calculations, either. To qualify for the credit, you need to provide complete details of the baby sitter or the care provider service you are utilizing.
Charitable deductions can be highly made use of. You can get tax deductions on the charity you give in cash or as gifts. It is said that you can even get the cost of ingredients deducted if you are making cupcakes for a charity sale.
Saver's credit is applicable to anyone who is saving in any of the retirement plans like IRA, 401(k), 403(b), etc. The tax credits make it quite easier to save in for the future in these programs. For different income levels, the credit can be up to 10%, 20%, or 50% of the IGA.
The Saver's credit according to different incomes for 2019:
| Credit Rate | Joint Return | Head of Household | Other Filers |
| 50% | Up to $38,500 | Up to $28,875 | Up to $19,250 |
| 20% | $38,501 - $41,500 | $28,876 - $31,125 | $19,251- $20,750 |
| 10% | $41,501 - $64,000 | $31,126- $48,000 | $20,751 - $32,000 |
| 0% | >$64,000 | >$48,000 | >$32,000 |
If you are filing for a standard tax deduction, you would not have to make many calculations. But if you are filing for itemized deductions, using a reliable tax deduction calculator can make the process more comfortable. You can easily find the online Tax deduction calculator.
It is a universal law to make use of every opportunity that knocks at your door. With so many options for tax deductions, it is your call to understand how to make the best use of these to reduce or taxable income or receive credits.
About Claudius Woods
Claudius began his blogging journey in the early 2000s, sharing his experiences and knowledge about Microsoft Windows on his dedicated website. His ability to simplify complex technical concepts and provide practical solutions to common Windows-related issues quickly gained attention within the tech community.
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