Tax deduction claim A powerful strategy for tax filers. Using appropriate deductions can reduce your bill, increase your tax return or ensure that you are taking advantage of the tax benefits offered by your federal and state governments.
Want to know how to best use tax deductions? Here is your guide to the 2020 tax deduction.
What is a tax deduction?
A tax deduction reduces the taxable income of a filer. In other words, a deduction “reduces your income in arriving at taxable income,” says Sarlene Wehring, a certified public accountant, financial advisor and founder of Wehring Wealth Management in Bellville, Texas. “And then you apply your (tax) bracket.” This is the opposite of a tax credit, which reduces your tax liability dollar for dollar. Tax deductions generally fall into three main categories:
- Standard deduction.
- itemized deductions.
- Cut from above.
Standard deduction It is the amount you have not taxed. It is set for each tax year and depends on your filing status, age, spouse’s age and whether or not you or your spouse are blind.
The standard deduction amounts for 2020 income (tax filed in 2021) are:
|filing status||Standard deduction 2020||65 and older or blind|
|One||$ 12,400||Add $ 1,650|
|Joint marriage||$ 24,800||Add $ 1,300|
|Head of household||$ 18,650||Add $ 1,650|
|Married separately||$ 12,400||Add $ 1,300|
For those who are 65 or older And Blind, double the additional deductible amount. If you are filing taxes in the form of married marriages separately and one spouse makes the deduction, the other should do so as well.
Item deductible expenses deducted From Your adjusted gross income, or AGI, to reduce your taxable income. Films that do not take the standard deduction typically choose to itemize the deduction because the total of those expenses is higher – and therefore more remunerative – than their qualified standard deduction amount.
These are the common items to consider in 2020:
- Charitable contribution deduction
- House interest deduction
- Medical expenses reduction.
- State and local tax deduction.
Charitable contribution deduction Those who are in charity can deduct donations given to eligible organizations. On the contrary, says medical expenses, Which may be deductible but unpredictable, charitable giving may be a common way to plan ahead to reduce your tax liability. “It probably gives you the only opportunity to do some tax planning,” says Craig Richards, director of tax services at Fiducari Trust International in New York City.
A strategy filer can use to double their donations in a single tax year, perhaps donating once in January and again in December. This technique, called “bunching”, can increase their deductible charitable contributions for a year, allowing them to abolish the standard deduction and make correct tax steps in that year.
House interest deduction Items that taxpayers purchase can deduct interest earned on the purchase of a qualified residence, building or substantial improvements. For loans earned after December 15, 2017, you can deduct home mortgage interest on your first $ 750,000 indebtedness ($ 375,000 for married filings). For eligible home loans taken prior to that December cutoff, the maximum amount of the previous $ 1 million ($ 500,000 if married filing separately) still applies.
In addition, the loan used to refinance your home can only be deducted if it is used to improve your home.
Medical expenses reduction. Eligible health care expenses such as items spent on the diagnosis, treatment, or prevention of a disease can be deducted from your adjusted gross income. You can only deduct those undefined medical expenses that exceed 7.5% of your AGI. Unnecessary procedures, such as cosmetic surgery, are not eligible.
State and local tax deduction. Films can reduce taxes paid in 2020 to $ 10,000 (if married separately) to Rs 5,000. Those taxes may include state and local personal property taxes, state and local sales taxes, and other deductible taxes.
Top line tax deduction
Deductions taken “above the line” are reduced To reach Instead your adjusted gross income, or AGI From Your AGI, like item cuts. You do not need to take your deduction to claim them. They are available if you take the standard deduction.
These are common deductions to know by 2020.
- Teacher’s expense.
- Health Savings Account Contribution.
- IRA Contribution.
- Self-employment deduction.
- Student loan interest.
- Charitable contribution.
Alimony. Recently divorces cannot pay the adjusted alimony to reach gross income, but you can still deduct it if you are paying the divorce alimony before December 31, 2018.
Teacher’s expense. Eligible teachers can deduct up to $ 250 (up to $ 500 if jointly married filing and both spouses are teachers), including unabsorbed expenses related to your job, books, supplies, and computer equipment.
Health Savings Account Contribution. a Health Savings Account, Or HSA, is a dedicated health care account funded by taxpayers who are enrolled in a qualified high-deductible health insurance plan. Those contributions, which are limited to $ 3,550 for single fillers and $ 7,100 for families in 2020, are deductible as an above-mentioned deduction. If you are 55 or older, an additional $ 1,000 is available.
Note: If you fund an HSA through your employer, your contribution may be deducted directly from your paycheck.
IRA Contribution. Taxpayers who qualify for deductible traditional IRA contributions, which are subject to limits based on income and active participation in an employer retirement plan, can deduct up to $ 6,000 for themselves and $ 6,000 for a spouse (those $ 1,000 for $ 50 with a catch-up) old) as an above mentioned deduction.
Remember that Roth IRA contributions are not deductible.
Self-employment deduction. Self-employed filers can deduct a portion of their self-employment tax, contributions to certain self-employed retirement plans and health insurance premiums among other deductions.
Student loan interest. Taxpayers who earn less than a certain “phaseout” can deduct up to $ 2,500 in student loan interest.
Charitable contribution. A new deductible for 2020 is for charitable contributions of $ 300 to organizations. It is also available when you do not create the item.
New tax cuts for 2020
There are some changes to the tax cuts for 2020. They include:
- $ 300 charitable contribution deduction.
- Charitable deduction limits based on AGI.
- Deductible IRA contributions for older workers.
Here is more information on each 2020 deduction:
$ 300 charitable contribution deduction. A new deductible for 2020 is for charitable contributions of $ 300 to organizations. This above deduction applies to cash donations made before December 31, 2020 and is also available if you do not itemize. To determine if your chosen donation is eligible, search on it IRS’s Tax-Free Organization Search Tool.
Charitable deduction limits based on AGI. Taxpayers projected to make large donations in 2020 may deduct a larger portion of their donations. This is because many charitable deductions were previously limited to 60% of adjusted gross income. For 2020, those contributions can be reduced to 100% of AGI. This applies to large gifts (as a part of income) and rectangular items.
Deductible IRA contributions for older workers. Retirement savers no longer need to be under 70 1/2 to take deduction for IRA contributions. Wehring says you need income to make a deductible contribution.
How to maximize your deduction
When claiming deductions, be sure to keep good records. You will need a paper trail to support the deduction for certain expenses such as charitable deduction topping $ 250 and medical expenses.
Keep in mind that deductions available under federal law may still not be available under state law. “Even if the IRS doesn’t let you cut it, the state can do it,” says Wehring. So review your state deductions or call your tax assessor to ensure that you are not withdrawing documents that can still get you state tax benefits.
Bunching or doubling on itemized deductions can be a strategy that helps you qualify for itemized deductions in a given year. Wehring recommended taking into account charitable contributions and ensuring property tax payments before the end of the year. “Pay in January and pay in December, so you deduct your property taxes to get up to $ 10,000, and then make charitable contributions to keep you on top.”