Understanding taxes can be quite challenging, especially with the ever-changing rules set by the IRS. It can be challenging to know which tax deductions you are eligible for. To assist you in saving money, we have compiled a list of 15 tax write-offs that you should be aware of this year. Use this list as a starting point for your research to determine your eligibility and seek advice from a tax professional if needed. Keep reading to find out more.
If you’re a student or paying off student loans…
American Opportunity Tax Credit
Geared towards undergraduate college students, the American Opportunity Tax Credit (AOTC) enables eligible students or their guardians to claim a credit for expenses incurred during the first four years of college. This credit allows you to claim up to $2,500 spent on items such as tuition, books, and course-related materials. The credit amount is dependent on your income and filing status. Moreover, it directly reduces your tax bill dollar-for-dollar and is refundable, potentially providing a refund of up to $1,000 if it brings your owed amount to zero.
Lifetime Learning Credit
Similar to the AOTC, the Lifetime Learning Credit (LLC) assists in lowering the amount owed by taxpayers by up to $2,000 to offset higher education costs. Unlike the AOTC, the LLC is non-refundable but can still be used to reduce what you owe. This credit is available for students in various educational programs and can be claimed annually without a limit. Remember, only one education credit can typically be claimed per tax year, so consulting a professional is advisable.
Student Loan Interest Deduction
Unlike a tax credit, a tax deduction reduces your taxable income. The Student Loan Interest Deduction allows individuals to deduct up to $2,500 of interest paid on qualifying student loans. Certain qualifications, such as paying interest on a qualified student loan, being legally obligated to pay said interest, and filing separately if married, must be met. If uncertain about eligibility, seeking guidance from a tax professional is recommended.
If you’re self-employed…
Qualified Business Income Deduction
Self-employed small business owners can benefit from the Qualified Business Income Deduction, allowing a deduction of up to 20 percent of qualified business income on taxes. To qualify, individuals must have pass-through income reported on personal taxes. The deduction amount varies based on income levels. Consulting a tax expert can help determine eligibility.
Home Office Expenses
For self-employed individuals working from home, Home Office Expenses offer deductions for portions of mortgage or rent, utilities, office supplies, and more. These deductions are typically made on Form 1040. Calculating the deduction involves considering various factors, such as the percentage of home used for work, square footage, or seeking advice from a tax professional.
Self-Employed Health Insurance Deduction
Individuals paying health insurance premiums out-of-pocket can benefit from this deduction if eligible. Qualifications include paying insurance for self, spouse, dependents, and children under 27, and being ineligible for employer-sponsored subsidized health plans. Seeking advice from a professional is recommended.
Self-Employment Taxes
Self-employment taxes can be deducted as a business expense, enabling individuals to deduct half of their self-employment taxes on income taxes. The current self-employment tax rate is 15.3 percent of net earnings. Seeking advice from experts is advisable.
Business Travel, Meals, and Entertainment
Entrepreneurs incurring business-related travel and entertainment costs can benefit from deductions for expenses like travel tickets, rental car fees, and business meals. Keeping receipts and detailed records is essential for accurate deductions.
If you own a home…
Mortgage Interest Deduction
Homeowners can benefit from the Mortgage Interest Deduction, allowing them to deduct the interest paid on their mortgage from taxable income. The deduction applies to mortgage interest paid on the first $750,000 of mortgage debt for primary or secondary homes.
If you have kids…
Child Tax Credit
The Child Tax Credit provides parents earning $200,000 or less with a $2,000 credit per qualifying child under 17, aiming to reduce total taxes owed on a dollar-for-dollar basis.
Child and Dependent Care Credit
The Child and Dependent Care Credit offers tax relief to those who pay for childcare services, aiding them by lowering taxes proportionate to the expenses incurred.
Write-offs for everyone to consider…
Retirement Savings Contribution Credit
The Retirement Savings Contribution Credit, known as the “saver’s credit,” offers tax credits to low and moderate-income individuals contributing to retirement plans.
Charitable Donation Deduction
The Charitable Donation Deduction permits the deduction of donations to tax-exempt organizations, enabling individuals to reduce their taxable income.
Earned Income Tax Credit
The Earned Income Tax Credit benefits low-income taxpayers by providing tax relief to offset Social Security taxes.
Medical Expenses
Unreimbursed medical expenses exceeding 7.5 percent of your AGI are tax-deductible, offering financial relief for significant medical costs.
