Taxes:
The Top 10 Tax Deductions Everyone SHOULD Know
The Top 10 Tax Deductions Everyone SHOULD Know
1. Mortgage Interest Deduction
Homeowners can deduct the interest paid on their mortgage for their primary residence and, in some cases, a second home. This deduction is particularly valuable in the early years of a mortgage when interest payments are higher. The deduction is subject to limits, and for mortgages taken out after December 15, 2017, the interest is deductible on the first $750,000 of mortgage debt.
2. State and Local Taxes (SALT) Deduction
Taxpayers can deduct state and local income, sales, and property taxes, up to a combined limit of $10,000 ($5,000 for married individuals filing separately). This deduction is especially beneficial for those living in states with high income or property taxes.
3. Charitable Contributions
Donations to qualified charitable organizations are deductible. You can deduct cash contributions as well as the fair market value of donated goods. Keep receipts and documentation for all donations, and for contributions over $250, obtain written acknowledgment from the charity.
4. Medical and Dental Expenses
If your medical and dental expenses exceed 7.5% of your adjusted gross income (AGI), you can deduct the excess amount. Eligible expenses include payments for diagnosis, cure, mitigation, treatment, or prevention of disease, and for treatments affecting any part or function of the body.
5. Student Loan Interest Deduction
You can deduct up to $2,500 of interest paid on qualified student loans. This deduction is available even if you do not itemize and is subject to income limits. The deduction phases out for higher-income earners.
6. IRA Contributions
Contributions to a traditional Individual Retirement Account (IRA) may be tax-deductible, depending on your income and whether you or your spouse are covered by a retirement plan at work. The maximum contribution limit for 2023 is $6,500 ($7,500 for those aged 50 and older).
7. Self-Employment Expenses
If you are self-employed, you can deduct a variety of business-related expenses, including home office expenses, health insurance premiums, and retirement plan contributions. Additionally, you can deduct half of your self-employment tax.
8. Education Expenses
The Lifetime Learning Credit and the American Opportunity Tax Credit are available for qualifying education expenses. While these are credits, not deductions, they can significantly reduce your tax liability. You can also deduct up to $4,000 in tuition and fees if you qualify, but you must choose between the deduction and the credits.
9. Home Office Deduction
If you use part of your home exclusively and regularly for business purposes, you may qualify for the home office deduction. This deduction is available to both self-employed individuals and employees who work from home for the convenience of their employer. You can deduct a portion of your mortgage interest, rent, utilities, and other home-related expenses.
10. Retirement Plan Contributions
Contributions to retirement plans such as 401(k)s, 403(b)s, and SEP IRAs are often tax-deductible. For 401(k) plans, the contribution limit for 2023 is $22,500 ($30,000 for those aged 50 and older). Contributions reduce your taxable income and provide tax-deferred growth on the invested amounts.
