Tax season is here, and people are scrambling to find every opportunity to get the biggest tax write-offs possible. There are plenty of esoteric deductions, but those savings are relatively small for most people.
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The more substantial breaks can be found in commonplace tax deductions related to your job, home and family. The following are six tax write-offs you should not overlook — they can save you a small bundle this tax season.
Last updated: April 7, 2021
1. Job Expenses
Even if you are not self-employed, some career expenses might be deductible. To be eligible, the expenses must be necessary for you to do the job for which you were hired. In addition, you must itemize your deductions, and the total costs must exceed 2% of your adjusted gross income.Job-related licenses and regulatory fees are deductible for many people. From real estate agents to medical doctors, many professions have licensing requirements and related fees that are deductible up to the amount spent for licensure.If you are going to claim such a deduction, make sure you have the receipts for those expenses, and that the fees incurred correspond to your profession. Becoming a licensed scuba diver is unlikely to be a valid deduction for a medical doctor.Other job-related costs that might be deductible include money spent on education related to your job, subscriptions to job-related journals and periodicals, and medical tests required for work. If you had to pay for a drug test to get a new job, or you subscribe to the Wall Street Journal for work, both are deductible.Elementary and secondary school teachers also can deduct up to $250 in expenses for supplies they have purchased for their classrooms. In general, you can deduct any unreimbursed travel costs — not including commuting costs — related to your job.2021 Small Business Spotlight: Nominate Your Favorite Small Business and Share With Your Community
2. Charitable Donations
There are a number of rules surrounding charitable deductions. However, generally if you donate cash or other property to an approved charity before the close of the tax year, that contribution can be deducted from your taxable income.Typically, you can only deduct charitable contributions up to 50% of your adjusted gross income. In other cases, such as donating to cemetery organizations, you can only deduct up to 30% of your gross income.Only deductions to domestic U.S. charities can be deducted from U.S. taxes. As always, make sure you have receipts from your contribution, especially if the contribution is a significant sum of money or property of significant value.Find Out: 35 Useless Expenses You Need To Slash From Your Budget Now
The best tax write-offs for individuals are not deductions, but exemptions. While deductions lower your taxable income, exemptions lower your taxes directly on a dollar-for-dollar basis.Everyone is entitled to a personal exemption. But you can also get a tax break for any dependents — as defined by the IRS — up to an amount of $4,000 per exemption. Dependents also potentially confer other tax benefits, such as the opportunity to file as a head of household, eligibility for the child tax credit and a bigger earned income tax credit.Each of these breaks potentially can be worth thousands of dollars, depending on your personal circumstances. The child tax credit is particularly notable because it was made permanent by the 2015 budget deal and is worth up to $1,000 per child as a direct tax credit — which again lowers taxes directly, rather than simply reducing taxable income — for married couples with incomes of less than $110,000.Save: 37 Life Hacks That Will Save You Money
One of the biggest tax deductions for most people is the mortgage interest deduction. Most homeowners can deduct all home mortgage interest. That’s a significant sum for money for many people, given that the monthly mortgage payment is often a homeowner’s largest bill.The mortgage interest deduction is valid only on your first or second home. If you have three or more houses, you can only deduct the mortgage on two of them. In addition, a second home only qualifies for the mortgage deduction if it is not a rental property.You might still qualify for the deduction on a rental property as long as the home is used by you at least 10% of the number of days per year that it is rented out. For example, if the house is rented out 300 days a year, you must use it at least 30 days a year to snag the deduction.If you own rental property, you are often eligible for significant deductions. The general rule of thumb is that all out-of-pocket rental property expenses are deductible in full. In addition, you can slowly depreciate the house itself and claim a deduction related to that noncash expense. That is a benefit not available to traditional homeowners. If you rent out part of your main home, you might be able claim a partial deduction.Read: 7 Major Emergencies That Could Bankrupt You
Some medical expenses are deductible for taxpayers, said William Rivero, an accountant with Correia Rivero & Lefebvre in Danbury, Conn. “The most important rule for deducting medical expenses from your taxes is that the medical expenses are deductible once they exceed 10% of your adjusted gross income, or at least 7.5% if you or your spouse is 65 years of age or older,” he said.Deductible medical expenses may include payments to doctors, dentists, surgeons, chiropractors, psychiatrists, psychologists and nontraditional medical practitioners.Other expenses that may be deductible are insurance premiums you paid for policies that cover medical care, or the cost of a qualified long-term care insurance policy covering qualified long-term care services.Find Out: The 8-Step Plan To Achieving Financial Freedom
Finally, one of the biggest opportunities for tax write-offs comes from income and losses associated with investments.Typically, most investment advisors advocate for holding an investment for at least 366 days if possible. Doing so allows you to pay taxes on any investment profits at the lower long-term capital gains rate, rather than the short-term capital gains rate. That tax write-down is particularly valuable for those in upper-level income tax brackets.Municipal bond income provides another chance to trim your tax bill. While the specific taxes vary in some circumstances, most municipal bond income is tax-free.Finally, individuals can also write-off losses on investments up to $3,000 annually, and they can carry any remaining losses forward to future years. This is especially valuable in years where the stock market performs poorly, such as in 2015.Taxes are not fun for anyone. But just as people take care of their health to lower their chances of dying prematurely, taking care of your financial health by seizing the best tax breaks lowers your costs.More From GOBankingRatesNominate Your Favorite Small Business and Share With Your Community
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This article originally appeared on GOBankingRates.com: 6 Ways You Might Be Eligible for a Tax Write-Off
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