What Counts as a Deductible? Tax season is just around the corner. The beginning of each year brings resolutions, a new start, and a review of last yearâ€™s finances. Depending on your employment and your life situation you will either be required to pay taxes or you will receive a tax return. Deductions allow you to reduce the amount you have to pay or may increase the amount of money you are paid in your return. While there are some obvious deductions you want to include, there are several that people overlook every year. All of these may not apply to your situation but it is good to know about them as they may apply in the future.
Deduction vs. Credit First, it is important to understand that there are 2 primary ways to reduce the amount of taxes you pay. Deductions and credits both take money off the amount of taxable income but they are slightly different in how they affect how much money you save. Deductions are run on a percentage basis that varies depending on the amount of income you make. Meaning that if you claim $4000 on a deduction and fall in the 25% bracket, you get a deduction of $1000. Credits, on the other hand, are good for 100% of their value. If your credit is $1000, you get the full $1000 taken off the total taxes you owe.
What Deductions Should I Look For? The deductions that you qualify for will differ for every individual. It is recommended that you speak to a professional who understands tax law and the intricacies of how it works. Many people choose to do their own taxes each year, and collectively they miss out on millions of dollars by neglecting to deduct some of the following items.
Sales Tax You can only select either income tax or sales tax as a deduction, so take a look at which one is a better choice for you. Income tax typically yields a greater return, but if your state does not deduct income tax, you want to make sure you opt to deduct sales tax.
Tuition There are several deductions and credits related to higher education. If youâ€™re a student, you want to make sure that you do not miss out on those. The amount that you are able to deduct depends on your income, so check with an accountant or tax professional to see what you qualify for.
Mileage This is a pretty big one that many people fail to take advantage of. You are allowed to take a per mile deduction for any miles you put on your car as long as it is for business, moving, or charitable work. The
rate per mile varies for each of these so check the federal guidelines to see how much of a deduction you get. There are several more deductions that you can claim depending on your situation. The best way to reduce your taxes and get a better return is to take the time to learn which deductions and credits you qualify for and take advantage of each one. Photo Credit: cityoflafayettega.com/, figures.boundless.com/