To break it down: If your adjusted gross income is $50,000, then 7.5% of that is $3,750. 5 Medical Expensesĭo you have health insurance but still find yourself paying out of pocket for medical or dental expenses? The IRS lets you deduct medical expenses that are more than 7.5% of your taxable income for things like appointments with medical professionals or dentists, prescription drugs, contacts or eyeglasses, and health insurance premiums (paid for with after-tax dollars and not reimbursed by your employer), just to name a few! 6 But this provision has expired-so no more deductions for charitable donations if you take the standard deduction. 4 Nice!Ĭongress passed a spending package for 2021 that allowed anyone who chose the standard deduction to take an “above-the-line” deduction of charitable gifts up to $300 for individuals and up to $600 for married filing jointly. You can deduct any amount of charitable giving up to 60% of your taxable income. The more you give, the more you can deduct from your taxes! If you itemize your deductions, any money you gave to your church, your alma mater or your favorite charities can all be written off your taxes. Here are some of the most common deductions that many taxpayers can take advantage of: Charitable Donations What Expenses Are Tax Deductible?įirst, let’s take a look at what you can write off from your taxes. 3 Be sure and check with a tax pro if you have any questions. But if you’re a nonresident alien or a dual-status alien, or someone else claims you as a dependent on their return, your standard deduction may be lower. Important to note: If you or your spouse are over 65 or legally blind, you might be able to get a larger standard deduction. Married and filing together? Your standard deduction is $25,900. So, if you’re single, the standard deduction is now $12,950. That’s great news for many taxpayers! For the 2022 tax year, the standard deduction has been adjusted slightly for inflation. Thanks to the 2018 tax reform bill, the standard deduction almost doubled from what it used to be. What Is the Standard Deduction for the 20 Tax Years? How do you know which option is best for you? There are a few things you need to know before you make your decision this year. Yes, itemizing is a bit of a hassle, but it’s worth the effort if you can claim enough deductions to lower your taxable income more than the standard deduction. And you’ll have to fill out a Schedule A form with your tax return and save your records to back up your claims. Itemizing your deductions takes more work-you’ll need to list all the deductions you want to claim one by one. No need to dig through receipts or bank statements to find your deductions. That lowers the amount of taxes you have to pay. If you choose to take the standard deduction, your taxable income is automatically reduced by a set amount based on your filing status (like single, married filing jointly or married filing separately). The standard deduction is an amount set by the IRS each year, and it is the easy option-it’s like an automatic tax freebie. When you’re filling out your tax return, there are two ways to claim tax deductions: Take the standard deduction or itemize your deductions. On the other hand, if you have a nonrefundable tax credit, the IRS won’t be sending that $300 check. If you have a refundable tax credit of $500 but only owe $200 in taxes, the IRS will send you a check for $300. Tax credits fall into two main categories: refundable and nonrefundable. If you get a $1,000 tax deduction and you’re in the 22% tax bracket, that deduction reduces your taxable income and saves you $220 when it’s all said and done. So, a $1,000 tax credit cuts your final tax bill by exactly $1,000. While tax deductions lower your taxable income, tax credits cut your taxes dollar for dollar. What’s the Difference Between a Tax Deduction and a Tax Credit? So, if your income is $50,000 and you gave a $1,000 gift to your favorite charity last year, you could claim that gift as a tax deduction, and you’ll only be taxed on $49,000 instead of $50,000.īut that’s only scratching the surface! From retirement plan contributions to home mortgage interest, there are dozens of tax deductions you might be able to take advantage of. Maximize your deductions to minimize your taxes. That means you could “write off” the money you gave to charity last year and reduce your taxable income by the amount you gave. Use one that’s on your side-Ramsey SmartTax.įor example, charitable donations are one of the most common tax deductions. Don’t settle for tax software with hidden fees or agendas.
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