Deductions are the best tool to pay less in taxes on your Income Tax returns; If you take advantage of them and document them correctly, you will make a big difference during tax season. However, not all expenses are deductible; the Internal Revenue Code is very specific about the types of expenses you can deduct and the taxpayers who can take deductions. This time we bring you a list of some general deductions that you can keep in mind or benefit from:
The Standard Deduction: It is available only for filing your tax return and varies depending on your age, marital status and employment information. If you want to check what the applicable standard deduction would be for your profile, you can check the IRS page which includes an estimate. The benefit of this type of deduction is that it does not require you to itemize the expenses to be deducted, but rather you deduct a pre-established amount that refers to the cost of living.
If you have a high level of medical expenses, property taxes, or donations you can file itemized, but remember that certain rules apply and you must keep track of your expenses and support them and it will take longer to prepare your taxes.
Refinancing mortgage points: In general, mortgage interest is tax deductible, which means you can subtract it from your income. This applies to any type of mortgage, ordinary or refinanced.
State sales taxes: There are areas of the U.S. territory considered Opportunity Zones, which allow individuals and entrepreneurs to invest in them to encourage economic growth and job creation in these communities. Among the benefits for investors is that they can deduct the profits they may obtain in these territories. If you want to learn more, you can visit the IRS website in the Opportunity Zones section.
Sale of a property: The tax code allows you to deduct all or part of the capital gains from the capital gains tax, provided you meet the following: you owned the home for at least 2 years, it was your principal residence in recent years and you have not participated in the gain from another home sale, if you meet these conditions, you can exclude up to $250,000.
Reinvested dividends: Although not a tax deduction directly, if you have dividends from stocks or mutual funds that are automatically reinvested in stocks, this allows you to increase your tax basis and either reduce the taxable capital gain or increase the loss which allows you to save taxes when you sell your stock.
The best way to find out what you can deduct is to use the IRS Tax Calculator, keeping in mind that total itemized deductions for all your state and local taxes are limited to $10,000 per year.
If you have more questions, contact us! At Smartkeep we can help you reduce your tax burden with deductions.