Taxes can be confusing and stressful, but there are ways to make the process easier and even save some money along the way. One way is to take advantage of tax deductions, which can reduce your taxable income and lower the amount of taxes you owe. Here are the top 10 tax deductions that you don’t want to miss.
1. Home office deduction
Many people are now working from home, and the home office deduction can help save some money. To qualify for this deduction, you must use the space exclusively for business purposes and it must also be your principal place of business. The expenses that can be deducted include rent, mortgage, utilities, and insurance. Keeping accurate records of these expenses is essential to ensure that you receive the deduction you’re entitled to.
There are some caveats to keep in mind when taking this deduction. For instance, you cannot claim the deduction if you’re an employee working from home. Also, the home office deduction may result in additional taxes if you sell your home because it reduces your cost basis.
2. Charitable contributions
Donating money or goods to a qualified charity can be a tax-effective way to support a good cause. Some qualified charities include religious organizations, schools, and non-profit organizations. However, it’s important to keep accurate records of your donations, and the charity must provide you with a receipt stating your donations.
Note that not all donations are deductible. For instance, donations to political campaigns or to individuals are not qualified for deduction. Also, the amount of the deduction varies depending on the type of donation you made, the charity you donated to, and other factors.
3. Medical expenses
If you have a high amount of medical expenses, you may be able to deduct them from your taxes. To qualify, the medical expenses must exceed 7.5% of your adjusted gross income. The expenses that you can deduct include doctor visits, prescriptions, and medical equipment.
It’s important to keep accurate records of your medical expenses, as well as receipts, prescriptions, and other documents. However, expenses that are cosmetic or elective, such as cosmetic surgery or teeth whitening, cannot be included for the deduction.
4. State and local taxes
You can deduct either your state and local income taxes or state and local sales taxes, but not both. This is especially helpful for those living in high-tax states, where the state income tax deduction can be significant.
It’s essential to keep accurate records of your state and local tax payments to ensure that you receive the deduction you’re entitled to. Additionally, not all taxes are deductible. For instance, federal income taxes and property taxes are not eligible for the deduction.
5. Education expenses
If you or your dependents are taking classes to improve job skills or are enrolled in college, you may be able to deduct some education expenses. Eligible expenses include tuition, books, and supplies, but not room and board.
However, this deduction is subject to certain limitations, such as income limits and caps on the amount of eligible expenses. It’s also important to note that if you receive a scholarship or a grant, you may not be eligible for this deduction.
6. Retirement contributions
Contributing to a retirement account, such as a 401(k) or IRA, is a great way to save for retirement, and it can also reduce your taxable income. Depending on the type of account you have, you may be able to deduct a portion of your contributions from your taxes.
It’s important to note that contribution limits and eligibility criteria for different types of retirement accounts can vary. Make sure to consult a financial advisor to ensure that you’re maximizing your retirement savings and receiving the tax benefits that you’re entitled to.
7. Job search expenses
If you’re searching for a new job in the same field, you may be able to deduct expenses related to your job search, such as resume preparation, travel expenses, and job placement agency fees. However, this deduction is only available if you’re already employed and are itemizing your deductions.
Note that if you’re changing fields or are a recent graduate looking for your first job, you’re not eligible for this deduction.
8. Mortgage interest
If you own a home, you can deduct the interest on your mortgage. This can be a significant deduction, especially in the early years of your mortgage when the majority of your payment goes toward interest.
It’s important to note that only the interest on your primary residence is deductible. Additionally, there are limits on how much interest you can deduct, depending on the amount of your mortgage and other factors.
9. Business expenses
If you’re self-employed or have a side gig, you may be eligible to deduct business expenses such as office supplies, travel expenses, and equipment. However, these expenses must be necessary and ordinary for your business. For instance, if you’re a writer, you can deduct the cost of your computer and internet service, but not the cost of your vacation.
It’s important to keep accurate records of your business expenses, including receipts, invoices, and other documentation, to ensure that you receive the deduction you’re entitled to.
10. Moving expenses
If you moved for a new job that is at least 50 miles farther from your old home than your old job was, you may be able to deduct your moving expenses. Eligible expenses include transportation, storage, and lodging expenses.
It’s important to note that there are restrictions and requirements to qualify for this deduction. For instance, you must have worked in your new location for a certain period of time, and the distance requirement may vary depending on your circumstances. Make sure to consult a tax advisor to ensure that you receive the maximum deduction.