What are the Most Common Tax Deductions?
Tax deductions are a crucial component of financial planning, especially for small business owners and individuals looking to minimize their tax liabilities. Here’s a comprehensive list of common tax deductions that people frequently inquire about:
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Standard Deduction vs. Itemized Deductions: Most taxpayers can choose between a standard deduction and itemized deductions. The standard deduction varies based on filing status, while itemized deductions are specific expenses allowed by the IRS that reduce your taxable income.
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Mortgage Interest: Homeowners can deduct interest on up to $750,000 of mortgage debt ($1 million if the loan originated before Dec. 15, 2017) for a primary or secondary home.
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State and Local Taxes (SALT): Deductions for state and local income, sales, and property taxes are capped at $10,000 ($5,000 if married filing separately).
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Medical and Dental Expenses: Expenses exceeding 7.5% of your adjusted gross income (AGI) can be deducted. This includes payments for doctors, surgeries, and other medical expenses.
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Charitable Contributions: Donations to qualified charities can be deducted. The specific amount depends on the type of contribution and the organization.
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Educational Expenses: Tuition and fees deduction allows lowering taxable income by up to $4,000 for higher education expenses.
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Student Loan Interest: Up to $2,500 of student loan interest paid can be deducted.
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Retirement Contributions: Contributions to traditional IRAs and certain employer-sponsored retirement plans can be deducted.
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Health Savings Account (HSA) Contributions: Contributions to HSAs are tax-deductible, and distributions used for qualified medical expenses are not taxed.
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Self-Employment Expenses: Self-employed individuals can deduct business expenses, including home office expenses, supplies, travel, and health insurance premiums.
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Child and Dependent Care Credit: Expenses for child care, enabling you to work or look for work, can be claimed as a credit.
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Earned Income Tax Credit (EITC): A credit for low-to-moderate income working individuals, particularly those with children.
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Business Expenses for Small Business Owners: These include office supplies, advertising, travel, and other necessary business expenses.
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Capital Losses: Losses on investments can offset capital gains and up to $3,000 of other income.
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Energy-Efficient Home Improvements: Credits for certain energy-efficient home improvements like solar panels and energy-efficient windows.
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Health Insurance Premiums: For the self-employed, premiums for health, dental, and long-term care insurance can be deductible.
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Casualty, Disaster, and Theft Losses: Losses from federally declared disasters can be deductible.
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Alimony Payments: For divorces finalized before 2019, alimony payments are deductible by the payer and taxable to the recipient.
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Gambling Losses: Losses can be deducted up to the amount of gambling winnings.
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Job-Related Expenses: For certain professions, unreimbursed work-related expenses can be deductible.
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Educator Expenses: Teachers can deduct up to $250 of unreimbursed expenses for classroom supplies.
Remember, the applicability and specifics of these deductions can vary based on individual circumstances, and tax laws are subject to change. It’s important to stay updated with the latest tax regulations or consult with a tax professional to maximize your deductions effectively.
For small business owners and individuals in the greater bay area, California, and beyond, understanding these deductions is key to minimizing tax obligations. By leveraging these deductions strategically, you can significantly impact your overall tax liability, ensuring more financial resources are available for growth and investment.
Always consider seeking professional advice for personalized tax planning and ensure compliance with all IRS and California Franchise Tax Board regulations.
For more information, please contact us at (415) 431-9660 and speak to a licensed tax professionals today!
For more information on AMT, visit the IRS website at www.IRS.gov