There were just over 169 million federal tax returns filed in 2021. Many people dread the yearly tax season, but it doesn’t have to be a negative experience. Understanding taxes is crucial for ensuring you get the largest refund possible.
Learn about the possible deductions you can claim when filing taxes to reduce your tax liability and increase your refund.
Understanding Taxes With Deductions
When you are filing taxes, there are deductions and credits. They are not the same thing. A deduction reduces your income, which reduces your tax liability.
A credit is a reduction of your tax bill. Some credits are refundable, so if the credit is greater than what you owe, the IRS will pay you the overage.
How to Claim Tax Deductions
When you are doing taxes, you will have the option of doing either standard or itemized deductions. Unfortunately, you cannot do both.
Standard Deduction
This method is ideal for most people. It’s a standardized deduction rate set by the IRS based on your filing status. If you are unsure of your standard deduction rate, you can check the IRS website.
Itemized Deduction
Depending on your situation, you can itemize your deductions to see if they add up to more than the standard deduction. If you’re unsure, add up your potential itemized deductions and compare the amount to the standard. If the itemized is more, then this is the better option.
The itemized deduction process is time-intensive, so consider this when making your choice. Always check each year because the standard deduction rate has increased in recent years. Even if the itemized method was better for you in recent years, it might not be again this year.
Possible Deductions You Could Claim
Not all deductions will apply to all people and situations. Therefore, before you claim a deduction, review the requirements to ensure you qualify.
When filing your individual taxes, you may be able to claim deductions for your business expenses, car use, education, health care, or investments. However, these can be confusing and can sound like business taxes.
Vehicle Deductions
You could file a vehicle deduction for your vehicle expenses. However, it has to be for business use, and the use of the car has to be a natural part of your business. Check out the g wagon tax write off to get a better idea of claiming your vehicle expenses.
Health Care Deductions
If you have medical and dental expenses or contribute to an HSA account, you may be able to claim these expenses as a deduction. However, the amount you can claim will depend on several factors.
- Filing status.
- Type and amount of expenses paid.
- The year in which the expenses were paid.
- Your adjusted gross income.
- If you were reimbursed
Education Deductions
If you pay student loan interest, you can claim this deduction. You may also be able to claim work-related education expenses. For example, teachers can claim teacher educational expenses.
Claim a Deduction on Your Taxes
Understanding taxes is a crucial part of managing finances responsibly. However, many people don’t realize that several deductions are available to them. Not claiming them means you’re paying too much on your taxes, which is money you could have used elsewhere.
Check out our other financial articles for more helpful tax advice.