Tax season can be a stressful time for many people, but understanding the basics of income tax deductions can help reduce your tax burden. The standard deduction is a specific dollar amount that reduces your taxable income. Depending on your marital tax status, the amount of the standard deduction varies, as shown in the table below. If you didn't pay taxes during the year or owe taxes, but you're entitled to one or more refundable tax credits, you'll also receive a refund equal to the refundable amount of the credits.
States that have a state income tax require that you file a separate state tax return, since they have their own rules. If your itemized deductions exceed the standard deduction, you can usually increase your tax savings by itemizing and attaching Schedule A to your tax return. Most Americans request the standard deduction on their federal tax return instead of itemized deductions. On the other hand, if you're married but file separate tax returns, you can't take the standard deduction if your spouse itemizes the deductions. Capital gains tax is another way to reduce your taxable income. The capital gains tax rate that applies to a capital gain depends on the type of asset, its taxable income, and the length of time it held the property sold.
These are called “marginal tax rates,” meaning that they don't apply to total income, but only to income within a specific range. When you file your tax return, if the amount of tax you owe (your tax liability) is less than the amount withheld from your paycheck during the course of the year, you will receive a refund for the difference. In general, you can deduct qualified, unreimbursed medical expenses that represent more than 7.5% of your adjusted gross income for the tax year. To calculate taxable income, start by making certain adjustments to gross income to arrive at adjusted gross income (AGI). If you don't get a tax refund and instead owe money on tax day, there may be a way to reduce the problem. Detailing allows you to reduce your taxable income by taking any of the hundreds of available tax deductions that you qualify for.
Taxpayers can reduce their tax burden and the amount of taxes they owe by applying for deductions and credits. For example, most people don't have to file a return if their income is lower than their standard deduction.