Income tax deductions are expenses that a taxpayer has during the year that they are allowed to claim in order to have a lowering of their taxes owed. Income tax deductions vary widely from country to country, and we will deal here with those in the United States on the federal level, as administered by the Internal Revenue Service (IRS). Claiming appropriate income tax deductions can lower the amount of taxes you owe considerably, and often people visit an accountant to make sure they haven’t missed any potential income tax deductions.
Charitable contributions are one of the most common deductions people take, and one that is often overlooked. Even small donations can add up over the course of a year, making it worthwhile for individuals at any tax level to claim them. This includes donations made directly to an organization, of course, like your $100 US Dollar (USD) annual contribution to your local firehouse, but it includes other things as well. For example, if you participate in a bake sale to help raise funds for a local religious non-profit, you can likely claim the price of the ingredients you use as a donation, and get a deduction for it.
If you are working at a job, earning income that you will be taxed on, and you then have to relocate to take a new job, you may be eligible to take income tax deductions on your moving expenses. To qualify, the new job needs to be at least 50 miles (80km) away from the old job, and you have to have worked at least thirty-nine weeks of the twelve months following the move. This can include anything from hiring movers, to renting a vehicle, to staying overnight somewhere on the way to your new home, and can add up to a significant deduction.
If you happened to have massive medical bills in a given year, you may be able to claim income tax deductions on some of those expenses. While not intended for people who just have routine checkups or small procedures, this can be extremely helpful for people who had to undertake major surgery. In order to qualify, at least 7.5% of your adjusted gross income in a year must have been spent on medical expenses, but if it was, you may be able to claim the full amount.
There are also a number of income tax adjustments you can take, whether or not you itemize your return. These act similarly to deductions, they are just technically different. One of the largest and most helpful for younger filers is an adjustment on student loan interest, which may be up to $2,500 USD each year. Retirement contributions may also be claimed as an adjustment, including money put into an IRA or a 401(k). And of course, business expenses can be claimed for certain unreimbursed expenses, depending on your exact situation.
Other common income tax deductions include interest paid on a home mortgage or home equity loan, personal theft losses, and state or local taxes paid. There are many, many different income tax deductions, and finding them all can be a bit difficult. An accountant can help you find deductions you may not have thought of, and many online tax assistance programs will guide you through the filing process by asking you questions meant to uncover deductions you may be able to utilize.