Tax deductions are a great way to reduce your taxable income and save money on taxes. A standard deduction is a one-time deduction for a fixed amount, while other deductions are based on expenses you pay during the year or are set by the government. The Earned Income Tax Credit (EITC) is a great option for those with low or moderate incomes, as it can help reduce the amount of taxes you owe. To qualify, you must meet certain requirements and file a tax return.
Contributions to retirement plans such as 401(k)s and IRAs also offer tax credits, depending on your adjusted gross income. You can also deduct mortgage insurance premiums, mortgage interest, and real estate taxes you pay during the year on your home. With TurboTax, you can be sure that your taxes are done correctly, from simple to complex tax returns. Donations may also be deductible, but the amount you can deduct may not equal the total amount of your donations.
Keeping track of deductible income and expenses throughout the year can make filing taxes much easier. If you're self-employed, you can deduct 100% of the health insurance premiums you pay monthly for yourself, your spouse and your dependents. Medical and dental expenses qualify for a tax deduction as well, but only if they exceed 7.5% of your AGI. Your MAGI is equivalent to the AGI you report on your tax return, plus the amount of the interest deduction on your student loan.
Taxpayers can take advantage of many deductions and credits each year that can help them pay a lower amount of taxes or receive a refund from the IRS. Start by gathering all the appropriate documentation, such as Form 1098 for mortgage interest rate deductions. Tax laws allow a series of deductions from your gross or total income to reach your adjusted gross income (AGI). If you're using tax software, it's worth answering all the questions about itemized deductions that might apply to you.
Property taxes, state income taxes or sales taxes and charitable gifts may also be deductible if you break them down. You may not have to submit these documents with your tax returns, but it's good to keep them together with your other tax records.