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What Are The Common Tax Deductions Available?

What Are The Common Tax Deductions Available?

A tax deduction is a legal method of reducing your taxes without being penalized. There is a wide margin between a deduction and credit, and the value is not the same, making it look like a gift card on the amount of tax to be paid. Nevertheless, tax deductions are beneficial since you can reduce your taxes by a handful. For example, people who make $50,000 annually can pay around $30,000 if they properly use an appropriate tax deduction method. As you plan to file your taxes, here are some common tax deduction methods to consider. 

Retirement Contributions

Retirees are on this side of the discussion by taking advantage of the traditional retirement account (IRA, 401(k), etc.). The scheme allows you to owe less in taxes, unlike those that did not contribute. If your contribution is made with every paycheck, you may overlook the deduction made on your account. The money is first credited before reducing the taxes making your taxes lesser. Tax benefits are also for those with an IRA and individual contributions to the account without the employer’s help. The IRA sees the contribution as an “above the line” deduction which does not require the itemizing form to enjoy the benefits.

Standard Deduction

The standard deduction is another way to enjoy tax benefits. Instead of itemizing your deduction on the Schedule A form, you can use the standard deduction to reduce the taxable income by $12,600 for couples on the joint tax filing system. However, those with a higher amount than the approved amount on standard deduction have no choice but to itemize, especially if you are free of phaseout and other limitations. Suppose you are confused about whether to itemize or standardize; first, file a Schedule A form to get the correct information. Taxpayers have many itemized deductions, which everyone can enjoy.

Student Loan Interest Deduction

The US student can have tax deductions on student loans. Students know that student loans are expensive and require colossal interest on returns. However, these loans are tax-deductible by using the 1098-E form. The loan provider sends this form each year to remind you how much you have paid in interest.

Personal Exemption

Almost everyone enjoys the personal exemption, making it the most used formula. Uncle Sam allows a set amount to be deducted from your taxable income. The exemption is enjoyed by the taxpayers and the number of dependents, including your spouse. Generally, the amount deductible is about $4,000 per head. So a man with a wife and two kids enjoys up to $16,000 in tax deductions. However, this method has many phaseouts and limitations after reaching a certain AGI, which is determined by your filing status.


Home Office Deduction

This opportunity is for entrepreneurs and people that run the office from home. The IRS allows such people to reduce certain business expenses from taxable income if they work from home. The home office deduction is utilized by owners and renters who use their homes for office functions and as a primary place of business. However, the space at home must be used regularly for business purposes. For example, buying or working on a kitchen table is not tax deductible. However, those with a specific room considered an office can qualify for these benefits. In addition, you can deduct maintenance and upkeep expenses, such as repairs, utilities, and insurance, for the spare room turned into office space.


Charitable Contributions

Charitable deductions are enjoyed mainly by people that use the itemized method of filing taxes. The IRS allows a tax deduction on donations made to approved charities. These donations can be cash or property given to charitable organizations and churches. You can also deduct your gas money for traveling to render the service to charity. But ensure the record is kept correctly and the rules are not breached. 



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