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It's tax season, and while it might not be everyone's favorite time of year, a little knowledge can go a long way in maximizing your tax refund. Being familiar with the tax credits you are entitled to is crucial in maximizing the size of your tax return.
To help make things easier, we have compiled a list of five common tax deductions many people overlook when filing their taxes. Doing so can maximize your refund and ensure you’re not leaving any money on the table! So, prepare for a much bigger tax refund this year!
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How Tax Reductions Work
Are you a newbie to filing taxes? Welcome to the wonderful world of tax deductions! These itemized deductions can be subtracted from your income and help reduce the federal income tax you owe or increase your tax refund amount.
In short, deductions are an effective way to save money and reduce your tax liability. So don't wait - take advantage of all the deductions available this tax season and get back more of your hard-earned dollars!
According to the
IRS, the average tax refund for 2022 was over $3,000. That’s a lot of money to get refunded, and it’s worth maximizing your refund by exploring all possible deductions you might qualify for.
1) State and Local Taxes
Did you pay local or state taxes? If so, you can deduct them from your federal income taxes. This includes any property taxes that you may have paid throughout the year. However, remember that certain states do not allow this deduction if they don’t impose an income tax themselves.
2) Mortgage Interest Deduction
Another commonly overlooked deduction is mortgage interest deduction. If you own a home, you can deduct the interest you paid on your mortgage for the year. This can add up to a significant amount, especially if you have a large mortgage.
Mortgage interest deductions are limited if your gross income is below a certain threshold based on filing status (for example, single filers cannot deduct the interest if their annual income exceeds $100,000).
3) Charitable Contributions
A charitable contribution or charitable gifts are also often overlooked regarding tax deductions. If you made any charitable donations throughout the year, such as donating money or personal items, to charity, then this is something you should consider deducting from your taxes.
Just be sure that you keep a record of all miscellaneous deductions and donations made throughout the year and that they are attached to proper documentation. The more documents and evidence you have for each deduction, the better!
4) Healthcare Costs - Medical Expenses
Qualified medical and dental expenses can also be deducted from your taxes, but only if they exceed 7.5% of your adjusted gross income. This can include doctor's visits, prescriptions, and even travel expenses to and from medical appointments.
Even if you don’t have medical insurance through an employer or government program, there are still ways that you can potentially deduct some healthcare costs from your taxable income, which includes any doctor visits and prescription medications (as long as they exceed 7% of your adjusted gross income).
Be sure to consult with an accountant before taking advantage of this medical expenses deduction to ensure accuracy in federal tax return filing!
5) Business Travel Expenses
If you're self-employed or have a side hustle, you may be able to deduct business expenses from your taxes and lower your tax bill. This can include office supplies, equipment, and even a portion of your rent or mortgage if you use a room in your home as an office. This is known as a home office deduction.
Other Popular Tax Deductions
In addition to the federal tax deductions outlined above, many others are available.
Education Expenses
These education expenses may qualify for deductible status if you currently attend a school or pay tuition fees for yourself or a dependent during the past tax year. Remember that this federal tax deduction only applies to certain education expenses (i.e., tuition fees) and not other related costs like books or room and board.
Moving Expenses
If you moved during the last tax year for work-related purposes, then some of the expenses paid for those moving expenses may qualify for a deduction on your taxes. This includes costs associated with packing materials, hiring movers, storage fees, and more as long as they meet certain criteria set forth by the IRS.
Keep all receipts associated with moving expenses to get the maximum benefit from this tax deduction!
Retirement Savings
Retirement contributions to a traditional IRA or 401k plan may be tax deductible depending on your income level and whether a retirement account plan at work also covers your spouse.
Investment Expenses
Qualified investment expenses such legal fees such as investment advisory fees and safe deposit box rental fees may also be eligible for a tax deduction.
These deductions are subject to certain limitations, and you may need to meet certain qualifications to claim them. For example, some investment fees and expenses incurred in a passive activity or in connection with tax-exempt income are not deductible.
It's always a good idea to consult with a tax professional or refer to the IRS website for more information about the qualification of these tax deductions.
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