While April may feel like it’s far away, tax season always feels like it comes sooner than we expect. The more planning that you do, the better you will be equipped to take advantage of all the tax deductions and benefits the government provides.
While you may think this is boring, saving money sure isn’t. We’ve put together some items that you may not have known could be deducted on your taxes:
1. Charitable donations and contributions
Many of you may know that charitable donations and contributions are tax-deductible. However, are you making the most out of this benefit? Expenses that you pay out-of-pocket while conducting charity work also apply! For example, the ingredients for the cookies that you baked for your local fundraiser or shelter can be deducted as well… just make sure you save your receipts or itemize the costs!
2. Health Insurance Premiums
Paying for health insurance can be painful, especially for your wallet. If your deductible medical expenses in 2020 exceed 10% of your Adjusted Gross Income (AGI), the expenses can be claimed as an itemized deduction for the year. However, if you are self-employed and pay for your own health insurance, you might be able to deduct 100% of your premium cost. This gets taken off your AGI rather than as an itemized deduction.
3. “Lifetime Learning” Tax Deductions
The IRS rewards continuous learning through this Lifetime Learning program. This program is geared towards college students, but this doesn’t mean you can’t get a tax break if you already graduated. The lifetime learning credit provides up to $2,000 per year, taking 20% off the first $10K you spend for education after high school. This is done as an incentive to pursue higher education, and phases out at higher income levels. The best part is however, they do not discriminate by age!
4. Uncommon Business Expenses
If you are self-employed or run your own business, you’d be surprised at the number of expenses that can qualify for a deduction. Some relevant examples are home office set-ups, general equipment, meals, and essentially anything that helps you progress or operate your business. If you can explain the reasons for it, you can generally deduct it off your business income.
5. Self-employed Social Security
One of the downsides of self-employment is the fact that you have to pay 15.3% of your income towards social security + medicare taxes. The portions that are usually paid by BOTH the employee and employer. The good part, however, is that you get to deduct the 7.65% employer portion off your income taxes! This is something that many people forget to do or simply did not know about.
6. Teacher tax savings
If you or someone you love has the awesome job of being an educator, this one’s for you. Countless times throughout life, we see our teachers spending out of pocket to create fun, unique learning experiences for us and our children. This is much appreciated, and thankfully, the IRS thinks so too. Teachers can deduct up to $250 individually, and up to $500 if their spouse is a teacher as well!
7. State Tax
When it comes to paying your taxes, you have a choice of deducting state sales or income tax from your federal income tax. If you live in a state that does not have it’s own income tax, this can be a huge money saver. Even if you paid state taxes, you may want to take a look at your sales taxes (especially if you recently made a big purchase like an engagement ring or vehicle) as it may be the better deal.
We can help you determine whether itemizing or taking the standard deduction is best for you and whether you should take the income or sales tax deduction, based on your information.
Student loan interest is the interest you paid during the year on a qualified student loan. It includes both required and voluntarily pre-paid interest payments. You may deduct the lesser of $2,500 or the amount of interest you actually paid during the year. The deduction is gradually reduced and eventually eliminated by phaseout when your modified adjusted gross income (MAGI) amount reaches the annual limit for your filing status.
These are just a few of the plethora of deductions that exist if you really go looking.
Thankfully, we’re here to do that for you. Contact us today and take advantage of our tax planning program that has saved our clients tens of thousands of dollars over the years.