Tax season is fast approaching, and it’s time to start thinking about tax deductions. Tax deductions are expenses that can be subtracted from your taxable income, which means you may owe less in taxes or receive a larger refund. It’s essential to know which tax deductions you’re eligible for because they can save you money.
One of the most common tax deductions is the standard deduction. The standard deduction is a fixed amount that reduces your taxable income based on your filing status. For example, if you’re single and file as such, your 2020 standard deduction was $12,400. Married couples filing jointly had a higher standard deduction of $24,800 in 2020. If your itemized deductions are less than the applicable standard deduction for your filing status, it makes more sense to take the standard deduction.
Another popular category of tax deductions is medical expenses. You can deduct any medical expenses that exceed 7.5% of your adjusted gross income (AGI). Medical expenses include things like doctor visits and prescriptions but also travel costs related to medical care like mileage or public transportation fares.
If you work from home, some home office expenses can be deductible too! To qualify for this type of expense reduction, there must be an exclusive space used regularly and exclusively for business purposes only – no couches or TVs allowed! Qualified home office-related expenses include rent/mortgage interest payments (and real estate taxes), utilities (like electricity and internet service), repairs/supplies needed to maintain the area designated as an office space.
Charitable contributions are another popular form of tax-deductible expense reduction; however, charitable donations have their unique rules depending on what type of donation was made in cash versus non-cash donations –such as stocks or property- will determine how much you can deduct.
Lastly, self-employed individuals have access to additional categories where they may claim business-related expense reductions like marketing/advertising costs associated with their business, travel expenses for work-related trips or even education costs that enhance skills to help grow your business.
In conclusion, taxes can be a daunting task but taking advantage of all the tax deductions available to you can save you quite a bit of money. Be sure to consult with a qualified accountant or tax professional if you have any questions about what expenses qualify as deductible!