{"id":7799,"date":"2022-04-05T15:00:46","date_gmt":"2022-04-05T19:00:46","guid":{"rendered":"https:\/\/www.realtyhop.com\/blog\/?p=7799"},"modified":"2022-04-01T17:12:03","modified_gmt":"2022-04-01T21:12:03","slug":"most-common-tax-deductions","status":"publish","type":"post","link":"https:\/\/www.realtyhop.com\/blog\/most-common-tax-deductions\/","title":{"rendered":"Everything You Need to Know About the Most Common Tax Deductions"},"content":{"rendered":"

Filing and paying taxes is hardly what most people would describe as a fun time. However, it’s an important\u2014and inevitable\u2014responsibility. And this year in the United States, following a two-year stretch where the deadline was extended, the federal tax filing has returned to its traditional Mid-April date. If you have taxes due or want to receive a tax refund, be sure to file your taxes by the 2022 deadline on April 18.<\/span><\/p>\n

While filing your taxes might not necessarily be “enjoyable,” there are still quite a few things you can do to make the entire process a bit better. You can take advantage of various tax deductions to reduce the amount of money you’ll owe to the federal government.<\/span><\/p>\n

For people expecting to <\/span>pay <\/span><\/i>taxes, using tax deductions can help lower your overall tax liability. For people who are expecting to receive a refund, you can maximize your current and even future returns with these deductions.<\/span><\/p>\n

In this brief guide, we will discuss the most important things you need to know about tax deductions.<\/span>\u00a0<\/span><\/p>\n

What Are Tax Deductions? (With Examples)<\/b><\/h2>\n

A <\/span>tax deduction <\/span><\/i>is an item on your tax filing that lowers your taxable income. As a result, this will reduce the amount of money you owe the government.<\/span>\u00a0<\/span><\/p>\n

Suppose your income from last year was $50,000. Before applying any tax deductions, <\/span>all <\/span><\/i>of this income will be subject to federal income tax. However, you can lower the portion of your income that will have taxes applied through tax deductions.<\/span><\/p>\n

The most commonly used tax deduction is the <\/span>standard deduction<\/span><\/i>, which is a deduction method that all tax filers qualify for and can choose to use if they want to. For 2021, the standard deduction is $12,550 for individuals and $25,100 for married couples filing jointly. In 2022, the amounts are $12,950 for individuals and $25,900 for married couples filing together.<\/span><\/p>\n

Let’s use the 2021 figures as an example. Suppose you choose to use the standard deduction. In that case, your <\/span>taxable income <\/span><\/i>can be lowered from $50,000 to $37,450, which significantly reduces the total amount you’ll end up owing (and if your adjusted gross income, or AGI, was below the standard deduction, you won’t owe any federal taxes at all).<\/span>\u00a0<\/span><\/p>\n

If you believe the total tax deductions you qualify for will be <\/span>less <\/span><\/i>than the standard deduction, you should take the standard deduction. However, there are some individuals who qualify for more than $12,550 worth of deductions and some married couples who qualify for more than $25,100 worth of deductions. When this is the case, you should <\/span>itemize <\/span><\/i>your taxes, which can help lower your taxable income even further.<\/span><\/p>\n

When Should You Consider Using (Non-Standard) Tax Deductions?<\/b><\/h2>\n

According to estimates from the Urban-Brookings Tax Policy Center, about <\/span>90 percent<\/span><\/a> of American households that file taxes use the <\/span>standard tax deduction<\/span><\/i>. Using the standard deduction means you won’t be able to qualify for most below-the-line tax deductions, but this will still often be the easier and financially wiser decision. This is because most people simply do not qualify for enough deductions to exceed the pre-established standard.<\/span><\/p>\n

However, if you believe that you qualify for enough deductions, you should consider itemized deductions. Some households that often qualify for enough deductions include people with expensive mortgages, people who give a lot of money to charity, people who run their own business, people with expensive health insurance, and people who have experienced various qualifying events (such as a natural disaster).<\/span><\/p>\n

Though it might take a little bit of time to itemize all your potential deductions, it certainly never hurts to <\/span>check <\/span><\/i>and see if they exceed the standard deduction\u2014you can always change your mind and accept the standard deduction if it turns out they do not.<\/span><\/p>\n

8 Tax Deductions You Should Consider Using<\/b><\/h2>\n

Interested in itemizing? Be sure to check and see if you qualify for any of the following tax deductions.<\/span><\/p>\n

1. Mortgage Interest Deduction<\/b><\/h3>\n

If you currently own a mortgage, you are likely paying several hundred dollars every month in <\/span>mortgage interest<\/span><\/i><\/a>. On average, mortgage holders pay about $5,000 per year in mortgage interest. While these interest payments are undoubtedly expensive, they are at least tax-deductible. Currently, you can deduct interest payments on up to $375,000 worth of mortgage debt for individuals and $750,000 worth of mortgage debt for married couples.<\/span><\/p>\n

2. Student Loan Interest Deduction<\/b><\/h3>\n

Interest payments related to your student loans are also tax-deductible. If your income is less than $70,000 (or $140,000 for a married household), you can claim up to $2,500 in tax deductions every year. As is the case with mortgage interest deductions (and other related deductions), remember that you only qualify to deduct the <\/span>interest <\/span><\/i>component of your payment\u2014not the entire payment.<\/span><\/p>\n

3. Qualified Medical and Dental Expenses<\/b><\/h3>\n

If you spent more than 7.5 percent of your adjusted gross income (also known as your above-the-line income) on medical and dental expenses, you can qualify for an additional tax deduction. In fact, once you meet the 7.5 percent threshold, you can deduct <\/span>all <\/span><\/i>remaining medical expenses. If your AGI for the year was $50,000, you must spend $3,750 on medical and dental expenses before you claim the deduction. Also, it’s important to note that these expenses must be <\/span>uncompensated<\/span><\/i>, meaning you won’t be able to claim them if your employer (or anyone else) ends up paying for them.<\/span><\/p>\n

4. Capital Loss Deductions<\/b><\/h3>\n

There are plenty of years when people will lose money in the stock market, especially during these highly volatile economic times. If your capital losses are greater than your capital gains, you can deduct these losses, up to $3,000, or $1,500 if you choose to file separately. However, the IRS only considers <\/span>realized <\/span><\/i>losses and gains, meaning the assets must have been sold or otherwise liquified.\u00a0<\/span><\/p>\n

5. Casualty, Theft, and Disaster Deductions<\/b><\/h3>\n

Generally, if you have experienced a disaster, theft, or another property-damaging event, you may qualify for a federal tax deduction if the loss is caused by a federally declared disaster. <\/span>According to the IRS<\/span><\/a>, casualty losses must result from a sudden and unforeseen event for casualty deductions. Theft losses generally require proof that the property was actually stolen and not just lost or missing.<\/span><\/p>\n

6. State and Local Taxes (SALT) Deductions<\/b><\/h3>\n

Most people pay multiple “layers” of taxes. If you are currently paying taxes to your state, county, or municipality, you can deduct at least some of these taxes from the amount of your income that will also be subject to federal taxes. Currently, the so-called “SALT” tax deduction has a limit of $10,000 for both married couples and individuals. There has been a lot of chatter about raising the SALT cut-off in Congress, though it’s unclear if and when there’ll be any progress.<\/span><\/p>\n

7. Business Deductions<\/b><\/h3>\n

One of the best ways to be eligible for different tax deductions is to spend your own personal income on business-related expenses. Almost any expenses related to running your business can potentially qualify for a deduction, including office expenses, qualified mileage, health insurance premiums, marketing expenses, a qualified home office, etc. Just make sure that you have documented proof of any deductions you are claiming.<\/span><\/p>\n

8. Charitable Deductions<\/b><\/h3>\n

If you give to a qualified charity, you will usually be able to claim that donation as a tax deduction. In most cases, for the charity to be considered “qualified,” it must be a registered 501(c) organization (most charities you are likely to encounter will be, though it certainly never hurts to check). And one of the nice things about charitable deductions is that you don’t even need to itemize your donations to claim them. Currently, filers who use the standard deduction can still claim up to $600 in charitable deductions per year.<\/span>\u00a0<\/span><\/p>\n

How Are Tax Deductions Different From Tax Credits?<\/b><\/h2>\n

While the terms are often used together, it is important to note that <\/span>tax deductions <\/span><\/i>and <\/span>tax credits <\/span><\/i>are different from one another. A tax deduction subtracts the amount of <\/span>income <\/span><\/i>that will be taxed. On the other hand, a tax credit is applied after your taxes have already been calculated and reduces the total amount of <\/span>tax <\/span><\/i>that you owe.<\/span><\/p>\n

To calculate potential savings, simply multiply your marginal tax rate by the size of the deductible. Suppose you have just finished your taxes and you have a marginal tax rate of 20 percent and owe the government $10,000. In this case, a $1,000 <\/span>tax deductible <\/span><\/i>could save you $200. By comparison, a tax credit <\/span>directly <\/span><\/i>reduces the amount of taxes you owe, meaning a $1,000 tax credit would help you save $1,000, and so you’d only owe $9,000.<\/span><\/p>\n

In other words, when they are of equal size, tax credits will save you more money than tax deductibles.<\/span>\u00a0<\/span><\/p>\n

Conclusion<\/b><\/h2>\n

As you’d probably expect, these are just a few of the many tax deductions that are currently available\u2014the current IRS code is tens of thousands of pages long and includes seemingly countless tax deduction opportunities. The more tax deductions you can find, the more you can reduce your final tax bill.<\/span><\/p>\n

 <\/p>\n","protected":false},"excerpt":{"rendered":"

Filing and paying taxes is hardly what most people would describe as a fun time. However, it’s an important\u2014and inevitable\u2014responsibility. And this year in the United States, following a two-year stretch where the deadline was extended, the federal tax filing has returned to its traditional Mid-April date. If you have taxes due or want to […]<\/p>\n","protected":false},"author":14,"featured_media":7800,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_lmt_disableupdate":"","_lmt_disable":"","footnotes":""},"categories":[2447],"tags":[],"class_list":["post-7799","post","type-post","status-publish","format-standard","has-post-thumbnail","category-personal-finance"],"yoast_head":"\nEverything You Need to Know About the Most Common Tax Deductions - RealtyHop Blog<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/www.realtyhop.com\/blog\/most-common-tax-deductions\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Everything You Need to Know About the Most Common Tax Deductions - RealtyHop Blog\" \/>\n<meta property=\"og:description\" content=\"Filing and paying taxes is hardly what most people would describe as a fun time. 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