Still, finding ways to save your money? You are at the right place! Saving money is a common concern for most people. Right from daily expenses, shopping, grocery to tax deductions, there are plenty of ways to save your hard-earned penny. All you need to do is discover and execute them properly. Well, this article helps you with 5 common tax deductions to get a maximum tax refund. Stick till the end to know what is a tax deduction and how to maximize your tax refund.
Tax deductions are your money saviors if you know how to maximize your tax refunds. Paying taxes more than you need to pay is simply lending your money to the government for zero interest. Instead, you can grow that money to a huge number if you invest it somewhere. Isn’t it? Therefore, you need to know how to play smartly and keep more with you to grow it. Though you get a big fat check later, you earn more if you save it with you now.
So, your ultimate aim should be to maximize your tax deductions. Because more tax deductions mean more tax refunds.
In case if you wonder what is a tax deduction, this is for you.
What is a Tax Deduction?
A deduction that lowers a person’s tax liability lowering the taxable income is known as a tax deduction. The income that is eligible for tax deduction is subtracted from your total income making a lower taxable income. Thus the higher tax deduction, the better as it makes your tax bill lower.
However, you can’t write off taxes just like that. You need to check whether you are eligible for tax deductions and maximize tax refunds.
5 Most Common Tax Deductions
The amount you pay as tax is an estimation and mostly made as a default. So, you need to make certain adjustments to avoid overpaying. As the government supports you by reducing taxes for buying a house, retirement funds.
However, you need to have some knowledge about how to take advantage of those rewards. So, here are 5 common tax deductions you can claim.
Standard or Itemized Deduction
You have two choices to file for a deduction standard deduction or itemized deduction.
The standard deduction is a flat amount based on your filing status.
- Single: $12,400
- Married & filing separately: $12,400
- Married & filing jointly: $24,800
- Head of household: $18,650
So, as you pay the standard amount you are not eligible for claiming other deductions such as mortgage interest, medical expenses, etc. Filing Standard Deduction is easier than itemizing.
With Itemize deductions, you can file each deduction such as mortgage interest, medical expenses, charitable donations, local taxes, etc.
So, maximize tax refunds, you need to calculate which is higher to reap the benefits.
Earned Income Tax Credit
Earned Income Credit is the tax deduction that is limited by income level. Based on the number of dependent children or your filing status you can claim this credit if your income is less than or equal to $55,952.
The tax credit you can avail is between $538 to $6,660 depending on your filing status.
Read: How to make a million dollars on an average salary
American Opportunity Tax Credit
AOTC stands for American Opportunity Tax Credit. You can claim upto $2500 if you have spent on your education in the past year. You can also get the full education if your gross income is less than $80,000 if you file your taxes separately or $160,000 or less if you file jointly with your spouse.
There is also a tax credit called Lifetime Learning Credit that lets you claim a maximum of $2000 if you have paid $10000. This works the same as American Opportunity Tax Credit and allows you to claim the amount you spend on books and equipment.
Retirement Savings Contributions Saver’s Credit
The other most common tax deduction is Retirement Savings Contributions Savers Credit. This is a non-refundable tax credit that lets eligible taxpayers make contributions from salary to 401(k), SIMPLE, 403(b), SEP, and governmental 457 plans.
You can claim upto $1000 if your file separately or $2000 if filing jointly with your spouse.
Retirement fund not only helps you lead a happy life in your golden age but also saves so much money on taxes.
Health Savings Account Contributions Deduction (HSA)
You can lower taxable income by saving for healthcare expenses in Health Savings Account. This way you can create a health fund for any necessary health expenses prior and also lower your taxable income. However, health expenses such as cosmetic treatments.
You can also save for childcare expenses if your employer offers Dependent care FSA. Individuals can claim upto $35,000 and families can save upto $7000 per year with HSA.
There are many more tax deductions with which you can lower your taxable income and raise taxable credit. A few of them you can consider after the above most common tax deduction are:
- Above-the-line Deduction
- Lifetime Learning Credit
- Child & dependent care tax credit
- Medical expenses deduction
- Mortgage interest deduction
- Gambling loss deduction
- Home office deduction
- IRA contributions deduction
Visit IRS official website and check if you are eligible for the above tax deductions. That way you can save more on taxes you pay for lifetime learning, mortgage, medical expenses, etc.
Bottom Line
You need to learn up-to-date tax information to take advantage of available benefits. As you have many options to save your money by lowering taxable amount, you need to keep watching those to make most of them. Else, you will be loaning the government for no profit and end up paying high-interest rate debts somewhere else.
Read: 10 realistic ways to pay off debt quickly
Though it is not easy to learn how to maximize your tax refund, you can take the help of your financial advisor. You might even be surprised to know that you can claim a tax deduction for traveling for charity. So, to reap such benefits you need to learn more about tax deductions. Hope this basic yet 5 most common tax deductions help you in building your financial plan and save you some money.
