Tax deductions are a great way to reduce your taxable income and lower your tax bill. By subtracting the amount of the deduction from your income, you can reduce your taxable income and, in turn, your tax liability. There are a variety of deductions available, from mortgage interest and real estate taxes to charitable contributions and health insurance premiums. Depending on your situation, you may be able to deduct sales taxes or state income taxes from your federal income tax.
Additionally, if you're self-employed, you can deduct up to 20% of your qualified business income (QBI).When filing taxes with multiple deductions, it's important to gather all the appropriate documentation and keep accurate records. You also have the option of using the standard deduction or itemizing to take the deduction. TurboTax can help you determine which option is best for you based on your inputs. If you own a home office, you can deduct the cost of any workspace that you regularly and exclusively use for your business.
You have two options for calculating this deduction: the standard method or the simplified option. The standard method requires you to calculate the actual expenses of your home office and keep detailed records in the event of an audit. The simplified option allows you to multiply a rate determined by the IRS by the square footage of your home office. You can also deduct the business portion of your telephone, fax and Internet expenses. The key is to deduct only expenses directly related to your business.
For example, you can deduct the Internet-related costs of running a website for your company. If you choose to use a car for business purposes, you have two options for calculating this deduction: the standard mileage rate or actual expenses. It may be worth calculating both ways to be able to claim whichever amount is greater. Finally, self-employed people can take advantage of retirement plan contributions such as SEP-IRA, SIMPLE IRA and individual 401(k). These contributions lower your tax bill now and help you accumulate tax-deferred investment gains for later. Tax deductions are an important part of filing taxes and can help reduce your taxable income and lower your tax bill. Be sure to gather all the appropriate documentation and keep accurate records when filing taxes with multiple deductions.
Additionally, consider taking advantage of retirement plan contributions such as SEP-IRA, SIMPLE IRA and individual 401(k) if you're self-employed.