Sun. Jul 3rd, 2022

It is common for most taxpayers to expect to pay the least amount of taxes possible or receive the most money back as a tax refund after submitting their income tax return. Taxpayers who haven’t done their homework on saving money on income taxes may find up paying more in taxes than the IRS expects of them come tax season.

When it comes time to file your income tax return, it’s critical to examine whether you qualify for tax deductions and credits and if you should itemize your deductions to lower your taxable income or increase your refund. We’ll go through each of these tax-cutting strategies in further detail below.

Tax Reduction Possibilities 

Expenditures that qualify for tax deductions can lower your taxable income. Adjusted gross income (AGI) is calculated by subtracting losses and expenditures, student loan interest, and up to $3,000 in capital losses from your gross income (AGI). Other expenses, such as state and local taxes and charitable donations, can be deducted from AGI in computing taxable income. The most well-known tax deductions tend to be the primary focus of most taxpayers. But there are several lesser-known tax deductions you may be eligible for.

Business Expenses

It is possible to deduct travel expenditures if you’re self-employed and must travel away from home for business. A business, profession, or job-related trip necessitated by the need to travel outside of one’s normal residence may be eligible for a tax deduction. Travel expenditures paid by your company are exempt from income if necessary for work purposes. Taxpayers can, however, claim deductions for unreimbursed employment expenditures only if they are members of the military or qualifying performers or state or local government officials or employees with impairment-related work expenses who are not reimbursed. Elementary and secondary school teachers can also deduct $250 in eligible costs each year.

Donations to charity

The value of the donated products may be deducted if you donate them to any approved charity organization. Please save any receipts and other documentation as proof of the value and cost of the donated items. Donations to charity organizations may only be deducted if the taxpayer itemized their deductions before 2020. Single taxpayers in 2021 will be allowed to deduct up to $300 in cash donations to qualified charitable organizations and still take the regular deduction. In 2021, husband and wife can together file and deduct up to $600 in non-itemized charitable contributions made in cash in addition to the regular deduction. Giving to non-operating foundations, supporting organizations, donor-advised funds, and other organizations that do not qualify as public charities are not eligible for this particular deduction for non-itemizers.

All charity gifts must be documented in writing by the IRS. Concurrently, a written confirmation of the donation’s quantity and value must be provided by the charity done for any contribution of $250 or more, which you must maintain. If you received something in return for your contribution, the confirmation must mention it.

Education Loans

On the other hand, there are two alternative circumstances in which interest on student loans may be deductible based on your educational expenditures. Regardless of the circumstances, you must be a student enrolled at least half-time in an accredited educational program. It is possible to claim a tax deduction if you have student loan interest paid by your parents because the IRS sees this as a gift from your parents. Up to $2,500 in student loans paid by your parents can be deducted from your federal income taxes if your parents don’t declare you as a dependant on their tax returns.

Some or all of the student loan interest you paid on loan for educational expenditures for yourself, your children, or your spouse may also be deductible under the tax code. Taxpayers can deduct student loan interest up to a maximum of $2,500. Qualified student loan interest is subtracted from gross income (AGI) in establishing adjusted gross income. Consequently, non-itemizers can take the deduction while deducting these expenditures. But if you are married but file separately, or your spouse is claimed as a dependant on someone else’s return, you cannot take this deduction.