Some Common Tax Deductions And Exemptions
July 28, 2017
Paying more than you ought to the IRS, is something every individual or business owner will try to avoid, and while everyone must pay their taxes, understanding some common tax exemptions and deductions, can help minimize the total and ensure that the end amount is accurate.
What are tax exemptions?
A tax exemption is money that you’ve lawfully earned, but which you don’t have to pay taxes on, and they differ to tax deductions.
If you claim every exemption that you qualify for, you can significantly reduce your tax bill, and the amount that you’re allowed to claim, is dependent on your filing status.
- As a single taxpayer: a personal tax exemption can be filed if you’re single, but being listed on another persons’ tax return, means that you will not qualify.
- As a married taxpayer who files jointly with a spouse: if you’ve filed a joint tax return with your spouse, then you may claim a personal exemption for them as well.
- As a married tax payer filing separately from a spouse: only one exemption can be claimed in this case, but if your spouse hasn’t filed a return, doesn’t have income tax for the tax year and hasn’t been claimed as a dependent by any other taxpayer, you may be able to claim an exemption for them.
- If you’re classed as a ‘head of household’ taxpayer: to qualify for this exemption, you must be unmarried as of the last day of the year, must have a child living with you who is a dependent, and must have contributed to more than half of the costs associated with maintain your household during the relevant tax year.
- If you’re a taxpayer with dependent children: As a parent, you may claim an exemption for each child that is under your care and is being supported by you, whether they be by birth, stepchild and/or foster child. The child must be no older than 19, must have lived with you for more than half a year, and must not have supported themselves for more than half of that year.
- If you have other dependent relatives: if you’re providing for a parent or even sibling, you may be able to claim them as a dependent relative, this will depend upon their gross income and whether you provide more than half of their total support for the year. You may have to take an IRS test to determine whether a person qualifies as a dependent relative.
What are tax deductions?
There are two types of deductions, 'standard deductions' and 'itemized deductions'. If you choose to file a standard deduction, then the amount will be based upon your filing status.
You may not always be eligible to file a standard deduction, but if you are able to, then you may be able to save money by itemizing your deductions.
Itemized deductions can get complicated, so to avoid missing out or incurring costly penalties, it would be wise to hire the services of a tax professional.
Here are a few common itemized deductions:
- Charitable donations: cash or check donations to charities must be recorded in a bank record or written record from the charity itself, detailing their name, the amount and the date of the contribution. Doing so can help you to lower your tax bill.
- Medical and dental expenses: any costs associated with medical and dental care for you and your family, may be deductible, but you can only deduct expenses that exceed 10% of your adjusted gross income or 7.5% if you or your spouse is older than 65.
- Homeownership: home mortgage interest may be deductible when you itemize your taxes, along with property taxes and mortgage insurance.
- Education expenses: tuition, book fees, supplies and even travel costs may be able to be deducted.
Taxes can be complicated whichever way you approach them, but hiring the services of a tax professional will ensure that you get every deduction and exemption that you are eligible for.