Tax deductions make it so you can decrease your taxable income amount. They are calculated by using a percentage of your marginal tax bracket. For example, let’s say you fall in the 25% tax bracket, if you received $1000 in tax deductions you would be saving $250 in tax (0.25 x $1000-$250).
Since tax laws are always being modified and most tax credits and deductions are available for a limited amount of time it is important for you to claim everything that you are eligible for on your income tax return each year.
Most tax payers try to make the most of the benefits that are available to them by deferring their income and accelerating their tax deductions.
When you start preparing your income tax return you are going to have to decide whether or not you want to take the standard deduction or itemize deductions. It is recommended that you compare and contrast both deduction types to see which one can provide you with the most benefits. This can be easily done with TurboTax online software.
The Standard Deduction
The amount of money that decreases your taxable income is known as a standard deduction. It usually adjusts inflation each year. The amount is calculated by your filing status and is subtracted for your adjusted gross income (AGI).
• $5,950 for single filers
• $11,900 for married joint filers
• $5,950 for married taxpayers filing separately
• $8,700 for head of household filers
Additional Standard Deduction for Visually Impaired Filers and Filers Over 65:
• $1,450 for single or head of household filers
• $1,150 for married filers
You can claim the standard deduction on IRS Tax Form 1040, IRS Tax Form 1040A, or IRS Tax Form 1040EZ.
If you are not eligible for the standard deduction you may want to go with itemized deductions instead. Usually, tax payers itemize their deductions when it provides them with more incentives than the standard deduction would. For example, if the total amount of deductible expenses is more than the standard deduction.
Some itemized deductions are calculated using a minimum amount which means the amounts that can be deducted most likely will exceed the specific minimum amount that is in place.
Additionally, when you itemize your deductions you should be aware that there is an income limit in place. If your AGI is more than $166,800 then a portion of itemized deductions is prohibited. This limit is for all tax filers regardless if you are filing jointly or single.
If you decide to go with itemized deductions you have to keep all of your records in detail. This includes the following documents:
• Medical Expenses
• Charitable Donations
• Interest Expenses
• Non-Business State Income Tax
Above the Line Deductions
Above the Line Deductions are the deductions that are taken before the AGI is determined. Many taxpayers believe that this deduction is more beneficial than the other deductions. Above the Line Deductions are subtracted from your gross income which in return gives you your AGI.
This type of deduction is going to be applicable to you even if you do not itemize your deductions. They were created to insure that you have protection on your personal exemptions and itemized deductions from phase-out.
Above the Line Deductions include, student loan interest, qualified tuition/fees, business mileage, contributions to qualified retirement accounts, job – related moving expenses, early withdrawal penalties for CDs and savings accounts and alimony.
Get Every Legal Deduction with TurboTax
All you have to do is answer a few questions about your tax situation, have your information put on the correct tax forms, and TurboTax online will bring to your attention the deductions and credits that you are eligible for.
This way you can keep more of your hard earned money. They even have a free tax refund calculator so you can see how much of a tax refund you can expect.