- July 5, 2021
- Posted by: blogtester
- Category: Uncategorized
If you want to lower your tax bill, you’ll need to claim all of the write-offs you’re authorized. Unfortunately, many people miss out on significant tax savings simply because they are unaware that certain tax deductions exist.
In addition, tax laws are constantly changing, making it even more challenging to stay on top of the latest exemptions, credits and tax deductions. And, if you don’t find out about the write-offs you qualify for before the revised return deadline, you’re out of luck.
Earned Income Tax Credit
It’s important to note that the EITC (Earned Income Tax Credit) is a refundable tax credit, not a deduction. This credit is intended to help low-to-moderate-income workers supplement their wages. However, it does not apply only to low-income taxpayers.
It also applies if you worked fewer hours during the year, had your pay reduced, or were laid off. The amount of your refund is determined by your family size, marital status and income. Even if you don’t owe any taxes, you must file a tax return to receive an EITC refund. If you were eligible for the credit in the past but didn’t, you could file for an EITC refund for up to three previous tax years at any time during the year.
State Sales Taxes
These types of tax deductions are most useful for people who live in states where there is no income tax. So, Wyoming, Washington, Texas, Tennessee, South Dakota, New Hampshire, Nevada, Florida, and Alaska, we’re looking at you.
Here’s why this matters. You must choose between state and local income taxes and state and local sales taxes to deduct. The state and local income tax deduction is usually the better deal for most citizens across income-taxing states.
There are two ways to claim the sales tax deduction on your tax return if you live in an income-tax-free state. To begin, you can use the IRS tables for your state to figure out how much you can deduct. Furthermore, you may be able to add the state sales tax you paid on major home renovations, home, airplane, a vehicle or a boat, to the amount shown in the IRS tables, up to the limit for your state. Alternatively, you can keep track of all of the sales tax you paid throughout the year and use that information.
Keep in mind that your total itemized deductions for all state and local taxes are capped at $10,000 per year.
Theoretically, this does not come under the head of tax deductions. But, it is a deduction that can help you save a lot of money. And it’s one that a lot of taxpayers overlook. Most investors reinvest the dividends they receive from mutual funds in additional shares. But, keep in mind that each reinvestment increases your stock or mutual fund’s “tax basis.” As a result, when you sell your shares, the taxable capital gain amount reduces or the loss on tax-saving increases.
Failure to add the reinvested dividends in the cost basis (which you minus from the sale proceeds to calculate your gain) results in an overpayment of taxes.
Student Loan Interest Paid By You Or Someone Else
Previously, no one received a tax break if a student’s parents or someone else paid back a student loan. The law stated that you had to be liable for the debt and pay it yourself to qualify for a deduction. However, there is now an exception.
Although someone else has paid back the loan, the IRS treats it as if they gave you the money, and you then paid off the debt. As a result, a student who does not claim as a dependent can deduct up to $2,500 in student loan interest. In this situation, either you may have paid for it or somebody else.
Child and Dependent Care Tax Credit
A tax credit is much better than a tax deduction wherein it reduces your tax bill dollar for dollar. As a result, missing any of the tax deductions is more painful than missing one that reduces the income subject to tax.
However, if you pay your child care bills through a reimbursement account at work, it’s easy to overlook the child and dependent care credit. The law allows you to deduct up to $5,000 in such expenses from your paycheck using a tax-advantaged reimbursement account at work.
State Tax Paid Last Year
Do you remember to owe taxes on your 2019 state tax return when you filed it in 2020? Then, on your 2020 tax return, add the particular amount to the state tax itemized deduction. It should also consider any state income taxes deferred from your paychecks or compensated in estimated quarterly payments. The deduction for state and local taxes limits to $10,000 per year beginning in 2018.
Job-searching costs incurred while looking for your first job are not deductible, but moving expenses incurred to get to that first job are. You can claim this deduction even if you don’t itemize. Suppose you relocated more than 50 miles. Then, you could subtract 23 cents per mile for the cost of driving yourself and your household goods to the new location (plus parking fees and tolls).
However, moving expenses are no longer deductible for federal taxes beginning in 2018 unless you are in the military, and military orders require the move. This tax break is still available in some states, such as California.
Refinancing Mortgage Points
When you purchase a home, you can subtract the points you paid to obtain your mortgage all at once. When refinancing a mortgage, however, the points should be subtracted on the basis of the life of the loan. For example, if you have a 30-year mortgage, you can deduct 1/30th of the points paid each year. It comes out as $33 per year for every $1,000 paid in points.
While that looks like an exhaustive list of tax deductions, it is not. There are many such deductions that taxpayers often miss. Talk to the Platinum Tax Defenders team to have the best advice. Don’t miss any of the tax deductions you are eligible for.