Taxpayers may have numerous contributions and deductions on their taxes each year that can help them pay a lower tax amount or get a refund from the IRS.
There are two main types of prints: the standard print and the single print. Here’s how they differ and how to choose the right path for your situation.
Read more: Best Tax Software of 2021
Joint individual prints
Itemized deductions are expenses that you can deduct from your gross adjusted income. These expenses often encourage behavior or help with expenses. Deducting mortgage interest on a home loan and property taxes incurred on the home is intended to encourage home ownership, says Daniel Fan, managing director, head of wealth planning at First Foundation Advisors. a financial institution based in Irvine, California. Deductions are also allowed for charitable contributions and the payment of certain medical expenses. Here are some of the most common deductions taxpayers list each year.
1. Property taxes
Under the Tax Cut and Jobs Act (TCJA), all state and local income taxes (SALT), including property taxes, are capped at $ 10,000 deductions. You can Deduct state and local income taxes paid (if you don’t own a home) instead of state and local income taxes, but you can’t deduct both.
2. Mortgage Interest
The Interest you pay on your mortgage is deductible and is limited to interest on mortgage debt of $ 750,000 for debts that arose after December 15, 2017.
3. State taxes paid
You can deduct state income taxes paid, but they are capped at $ 10,000 and include all state and local income taxes.
4. Real estate costs
You can Deduct mortgage insurance premiums, Mortgage interest, and real estate taxes that you paid on your home during the year.
5. Donations to charity
You can deduct up to 60% of your Adjusted Gross Income in cash. Donations of objects or property are also considered individual deductions.
For 2020 and 2021 only The CARES Act allows individuals who have donated money to various nonprofit, educational, scientific, or literary organizations due to the coronavirus pandemic, up to $ 300 with a deduction by 2020 – and this may and may not be in addition to the standard deduction must be listed.
6. Medical expenses
You can Deduct $ 0.17 per mile for medical purposes such as going to doctor or hospital appointments. When submitting Form 1040, you can only deduct the amount of your medical and dental expenses that is more than 7.5% of your Adjusted Gross Income. The expenses must have been paid in 2020 unless they were charged to a credit card (in which case you can deduct the expenses in the year you charged the card, not necessarily the year in which You paid them back).
7. Lifetime Learning Credit Education Credits
The Lifelong learning credit enables people to earn credits for teaching at a community college, university, or other higher education institution. The maximum amount of expenses you can deduct is up to $ 10,000 for an unlimited number of years. However, the maximum that you can receive in credit is $ 2,000 per tax return.
The credit allows for a dollar-for-dollar reduction in taxes owed. Expenses may include tuition, fee payments, and required books or materials for post-secondary education for yourself, your spouse, or your dependent child. The The credit is non-refundable. This means that the balance can be used to pay any taxes you owe. However, you cannot get any credit back as a refund.
The loan amount begins to decrease when your modified adjusted gross income (MAGI) exceeds a certain threshold ($ 59,000 if you are single or $ 118,000 if you are married and file together). Credit will not be available once your income exceeds certain amounts ($ 69,000 for single, $ 138,000 for marriages submitted together). Note: This credit cannot be requested in the same year as this American Opportunity Tax Credit if the costs are claimed as lifelong learning credit.
8. American Opportunity Tax Education Credit
The American Opportunity Tax Credit awards credits for the first four years of higher education. The maximum annual credit is $ 2,500 for each eligible student. According to the IRS, if the amount of taxes you owe on this credit is zero, you are eligible for a refund of 40% of the remaining amount of the credit, up to a maximum of $ 1,000. The credit is worth 100% of the first $ 2,000 in eligible education costs paid for each eligible student and 25% on the next Qualifying education cost of $ 2,000.
“If you, your spouse, or child are in school, it’s a good idea to dig deeper into educational credits,” says Fan. “For students who are in their first four years of college, this credit could mean greater tax savings than life Learning credit. “
Eligible expenses include tuition, fee payments, and required books or materials for post-secondary education for yourself, your spouse, or your dependent child. The credit will be reduced if the modified adjusted gross income is between $ 80,000 but less than $ 90,000 for a single applicant and $ 160,000 but less than $ 180,000 if the marriage is filed together. These credits cannot be claimed in the same year that the lifelong learning credits are claimed.
9. Retirement savings
The contributions you make to a retirement plan such as a 401 (k) plan or a Traditional or Roth IRA plan give you a 50%, 20% or 10% tax credit, depending on yours Adjusted gross income that you provide on Form 1040. Rollover contributions do not qualify for credit.
The maximum contribution amount that qualifies for credit is $ 2,000 ($ 4,000 if marriage is filed together), making the maximum credit is $ 1,000 ($ 2,000 if marriage is filed together). The IRS has one Chart to help you calculate your balance.
10. IRA contributions
The maximum contribution for 2020 in a Traditional or Roth IRA is $ 6,000 plus an additional $ 1,000 for people 50 years of age or older. Your contributions to a traditional IRA are tax deductible.
11. Self-employed health premiums
If you’re self-employed, you can deduct 100% of the health insurance premiums you pay monthly for yourself, your spouse, and loved ones, whether or not you report any deductions, says Robert Charron, CPA responsible for Friedman’s tax department. a New York-based accounting firm.
If you have children and they were under 27 at the end of 2020, you can also deduct their premiums – even if they are not dependent.
However, you will not be able to claim this deduction if you are eligible to participate in a subsidized health insurance plan provided by an employer of yours, your spouse, your loved ones or children under the age of 27.
Your long-term care insurance premiums may also be eligible for deduction, but there are Limits based on your age and how much your premiums cost.
12. Student loan interest
The maximum Interest deduction for student loans is $ 2,500. If you are single and your AGI is above $ 80,000 or you are married filing together and your AGI is above $ 165,000, you will not be able to deduct your student loan interest.
What is the standard deduction?
The standard deduction is an automatic deduction of your taxable income that you can receive without individual deductions.
When deciding whether to use the standard deduction amount or try to get more through individual deductions, it’s important to remember that a new tax law called the Tax Cuts and Jobs Act (TCJA) was introduced under former President Donald Trump onwards the tax year 2018. This bill “has significantly increased the standard withholding amount for both households filing together and individuals filing alone,” says Fan.
T.The standard marriage registration allowance nearly doubled to $ 24,800 for the 2020 tax year, an increase of $ 400 year over year. The standard withholding rose to $ 12,400 in 2020, which is the equivalent of $ 200 for single taxpayers and married individuals filing separately. For head of households, the standard 2020 tax deduction is $ 18,650, an increase of $ 300.
Prior to the adoption of the TCJA in 2017, the amount was $ 6,350 for single registrants and $ 12,700 for spouse joint registration.
“Because the standard deduction amounts have increased so much, it’s harder for people to have enough expenses to list the deductions,” he says.
Tips for writing off contributions to your taxes
Having a table of your contributions and expenses throughout the year can make filing taxes much quicker and easier.
“Preparing and organizing everything for your taxes can be a daunting task, but a lot of people encounter the same common mistakes,” says Fan. “Don’t forget to always list all sources of income, make sure you find and include all possible deductions , and understand the Difference between a deduction and a credit. ”
Some of the most common mistakes people make are the following, says Fan:
- Don’t list all earnings
- Don’t consider all possible deductions
- Don’t fully understand the difference between deductions and credits
- Do not use contributions to retirement accounts to increase tax-deductible contributions.
Know what expenses can be deducted and then keep a record of them, he says. If you are unlikely to be listing prints, this exercise is not important.
To see if you could possibly list your deductions, add up the ones that are likely to result in the largest deduction, including:
- Mortgage Interest Deduction
- Charitable deduction
- State and local income taxes (including property tax and state income tax, capped at $ 10,000)
“If those amounts aren’t close to the standard deduction amount, you will likely need to use the standard deduction amount, which is usually the auto-provisioned amount,” says Fan.
If you are filing tax with multiple deductions, the first thing to do is to collect any required documentation such as the 1098 mortgage interest deduction form. For other deductions based on expenses or contributions, keep accurate records.
“Listing your prints helps you keep track of qualifying medical expenses, charitable donations, or any other deduction that may be listed,” he says. “If you’re probably taking the standard trigger, keeping records isn’t that important.”