Tax deductions are a great way to reduce your taxable income and, in turn, your tax liability. By subtracting the amount of the deduction from your income, you can lower your taxable income and, as a result, your tax bill. Tax deductions are based on a variety of factors, such as expenses you pay during the year or deductions set by the government. Depending on the deduction, you may need to meet certain criteria in order to qualify for it.
The tax code provides this treatment to take into account investments, risks and losses, and to account for other taxes on the same income throughout the year. If you're filing taxes with multiple deductions, it's important to gather all the necessary documentation first. This includes Form 1098 for mortgage interest rate deductions and Form SS-8 for Determination of Worker Status for Federal Employment Taxes and Income Tax Withholding. Taxpayers can take advantage of a variety of deductions and credits on their taxes each year that can help them pay a lower amount of taxes or receive a refund from the IRS.
Medical and dental expenses qualify for a tax deduction, although you can only deduct costs that exceed 7.5% of your adjusted gross income (AGI). Employee contributions to a 401 (k) plan are deferred for federal income tax and income tax in most states. Payroll deductions are generally processed in each pay period based on applicable tax laws and withholding information provided by your employees or a court order. Taxes and wage garnishments are mandatory and employers who don't accurately withhold these deductions may be responsible for missing amounts.
Your modified adjusted gross income (MAGI) is equivalent to the AGI you report on your tax return, plus the amount of the interest deduction on your student loan. With TurboTax, you can be sure that your taxes are done correctly, from simple to complex tax returns, no matter what your situation. Keeping a good record of your deductible income and expenses in a spreadsheet throughout the year can make filing taxes much faster and easier.