- Have you ever wondered how you can lower your taxes?
- Are you familiar with all write-offs and deductions available to you?
In most cases, the answer is no. Without a personal accountant or a ton of research, most people are not aware that they are missing their chance to increase their tax refund or decrease their taxable income. Keep reading to find some of the most commonly overlooked tax deductions, as this may help when filing your 2020 tax returns.
What is a tax deduction?
Tax deductions are a way to reduce your taxable income. By subtracting the total amount of your deductions from your total income, you are reducing your taxable income and tax liability.
Types of tax deductions.
When filing your taxes, you have a choice between taking a standardized deduction and an itemized deduction. A standardized deduction is a fixed amount depending on your filing status. (See standardized deduction chart below.)
An itemized tax deduction is a compilation of your qualifying deductions from the list of hundreds of tax deductions available. By reviewing your standardized and itemized deductions, you can decide which option gives you the best return.
Filing Status | Standard Deduction 2020 | 65 Years and Older or Blind |
Single | $12,400 | Add $1,650 |
Married filed jointly | $24,800 | Add $1,300 |
Head of household | $18,650 | Add $1,650 |
Married filing separately | $12,400 | Add $1,300 |
When choosing to use an itemized deduction over the standard deduction, there are hundreds of itemized deductions to go through. This process can be tedious, time-consuming, and requires more paperwork and proof of qualification. However, if your itemized deduction is significantly higher than the standardized deduction, it may be in your best interest to file an itemized tax deduction.
Top 10 itemized deductions you may qualify for.
(Limitations may apply to all deductions, please consult your tax account for the most accurate information.):
- Student Loan Interest Deduction
- Up to $2500 deduction if you paid interest on your student loans.
- Charitable Donations Deduction
- The total value of charitable gifts given. Charitable gifts can be given in either cash or property (such as clothes or a car). Limitations may apply.
- Medical Expenses Deduction
- Qualified, unreimbursed medical expenses can be deducted if they are more than 7.5% of your adjusted gross income.
- State and Local Tax Deductions
- Up to $10,000 deduction ($5,000 if married filing separately) through a combination of property taxes and either state/local income taxes OR sales taxes.
- Mortgage Interest Deductions
- Reduces taxable income based on the amount of interest paid towards a mortgage.
- Gambling Loss Deduction
- Deductions available only to the extent of winnings; deductions cannot be greater than the value of reported winnings. Losses are not deductible unless winnings are reported as well.
- IRA Contributions Deductions
- Deductions are available for money contributed to retirement plans. The amount of deductions is limited based on account plans.
- 401(k) Contribution Deduction
- If your contribution is diverted directly from your paycheck, contributions are not taxed. For those under 50, $19,500 per year can be contributed and deducted from your taxable income. For those 50 and over, $26,000 can be contributed and deducted.
- Home Office Deduction
- A regularly used home office qualifies for deductions on rent, utilities, real estate taxes, maintenance/repairs, and more.
- Educator Expenses Deduction
- School teachers and other eligible educators qualify for a deduction, up to $250, spent on classroom supplies.
One of the most important pieces to claiming your tax deductions is to keep good records. Many deductions require proof to claim. There is also a multitude of deductions that are not available at the federal level but are available at the state level. Be sure to consult your tax accountant for the most up-to-date and accurate information regarding your deduction qualification.