Tax season can often be a little stressful for everyone, and many times people don’t understand what tax deductions and credits they can take advantage of. Because of this, many people end up paying more than their tax liability. If you learn about tax deductions and credits, you can reduce your taxable income and reduce your total tax liability. In this article, we will talk about some of the major tax deductions and credits that you may be missing out on, and these can help reduce your tax liability.
Table of Contents
Main Tax Deductions You May Be Missing
1. Donation-Related Deductions
If you make a donation to a qualified organization, you can get a tax deduction on it. Although most people know that donation-related deductions can be availed, many people only consider cash donations as deductions. In fact, you can avail deductions not only by donating cash, but also by donating items such as old clothes, household goods, or vehicles. You should properly record your donation receipts and the market value of the items, so that you get the right deduction.
2. Medical Expenses
Medical expenses you incur may also be eligible for tax deductions, especially if these expenses are a large part of your gross income. If your medical expenses are 7.5% or more of your annual gross income, you can offer these expenses as a tax deduction. This may include doctor’s fees, hospital bills, medicines, and other medical services. This deduction can be especially beneficial for those who have high health expenses.
3. Home Office Deduction
If you work from home, you can avail a tax deduction for a home office. For this, your working area should be an exclusive and continuously used part of your home. You can claim deductions on electricity, internet, and other expenses for your home office space. This can be especially beneficial for those who are freelancers or small business owners.
4. Education-related deductions
If you are spending money on education-related expenses, you can get a tax deduction on it as well. This can include tuition fees you pay, interest on student loans, and other educational expenses. There are several tax credits and deductions, such as the American Opportunity Credit and the Lifetime Learning Credit, that can reduce your tax bill. You should make sure you are taking advantage of these credits and deductions.
5. Deduction on state and local taxes
Many people forget that they can claim deductions for state and local taxes. You can claim deductions on your state income taxes, local property taxes, and sales taxes. This can be especially helpful for those who live in areas with high state or local taxes. By taking advantage of this deduction, you can reduce your overall tax liability.
6. Contribute to retirement plans
Your contributions to your retirement account, such as a 401(k) or IRA, can lead to a tax deduction. When you contribute to these accounts, your taxable income is reduced. This means you can reduce your tax liability, and at the same time save for the future. This is a long-term strategy that not only helps reduce today’s tax bill, but also provides financial security for your future.
Key tax credits you may miss
1. Child Tax Credit
If you have children, you can avail of the child tax credit. You can get this credit based on the age and status of your child. If you take advantage of this credit correctly, it can reduce your tax bill substantially. This credit is especially helpful for families with limited income.
2. Earned Income Tax Credit
The Earned Income Tax Credit (EITC) is a beneficial credit for individuals and families whose income is up to a certain limit. If your income is within this limit, you may be eligible for this credit, which can reduce your tax bill and also get a good refund.
3. Energy Credits
If you have made some investments to make your home energy efficient, such as solar panels or energy efficient appliances, you can take advantage of energy credits. These credits can help reduce your taxes and also give you an opportunity to do your responsibility towards the environment.
Conclusion
Understanding tax deductions and credits and using them properly can play an important role in reducing your tax bill. Many people ignore these opportunities, but this article tells you about the key deductions and credits you may miss. Make sure you’re taking advantage of eligible deductions and credits for your taxes so you can avoid overpaying and keep your tax liability at a reasonable level.
