What Counts as a Tax Deduction? Getting Started on Your Taxes
Let's face it: doing your taxes can be confusing. You are trying to itemize all of your possible deductions for the year, and not miss anything. The last thing you ever want to do is file your taxes, then come to learn that there were things you didn't know you could deduct. A deduction, or an amount that can be subtracted from your adjusted gross income, can lower your taxable income and can save you money. You'll need to know what tax credits you qualify for to get the most out of your annual tax return. Let's take a look at what exactly counts as a tax deduction for federal taxes so that you can make sure you are minimizing your bill and maximizing your refund!
Interest on Your Mortgage and Real Estate Taxes
If you are a homeowner who is paying a mortgage, you'll definitely want to itemize your mortgage interest payments. Over the course of a year, many people pay a significant amount of mortgage interest. This is possibly one of the largest deductions you will have. You can deduct interest for up to the first $1,000,000 that is borrowed on a mortgage loan.
Real estate taxes can be itemized as a deduction as well for the year that you are filing. This deduction is permitted if the property is being used for your personal use and if they are based on the property's assessed value.
Job Search Expenses
Many people are pleasantly surprised to learn that they can deduct job search expenses when they prepare their tax return. This is a huge benefit to those who have spent some time during the course of the year job hunting. There are some guidelines to remember to follow when doing this. For example, first-time job hunters are not eligible for this deduction, nor are those who are changing careers.
Educational Expenses
If you are a student, don't overlook your educational expenses on your tax return! You may be eligible to deduct loan interest, textbooks that are free from sales tax, contributions to a 529 account, and more.
Business Expenses
Don't forget to deduct your business expenses for the year. Ordinary and necessary expenses can be deducted, including business use of your home or car, taxes, insurance, interest, rent, employee's salaries, and more.
Charitable Donations
If you donated to any charities in the past year, you can deduct this expense on your federal tax return. Always keep a record of amounts that are donated throughout the year so they can be included.
Medical Expenses
This affects a lot of people, so remember to include your medical expenses. Remember that there are specific guidelines for this deduction as well. Specifically, the deducted amount must exceed 7.5% of your adjusted gross income.
IRA and 401K Contributions
These retirement contributions can be tax deductible! This is a great way to take advantage of tax benefits while saving for retirement.
Doing your taxes each year does not have to be stressful! Always be aware of exactly what you can deduct from your income that will benefit you and get you the biggest tax return possible. It is best to consult a professional to assist with the preparation of your return in order to ensure that you are aware of every possible deduction that you may be eligible for.