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Tax season is here.
Hopefully that means a little cash infusion is headed your way after you get everything filed. Of course, there will always be the naysayers that like to point out “You shouldn’t be excited about getting a refund! That just means you overpaid this whole time!” Fair enough. Still, it feels better to get a nice refund than to get hit with a big tax bill.
If you are looking to increase the size of your tax refund this year, I’ve put together a list of common tax deductions that might help you.
First things first, though…
What are tax deductions and how do they help me?
Let’s say you have $30,000 in taxable income this year.
What a tax deduction does is it reduces your taxable income, which therefore lowers your tax liability (a.k.a. how much tax you owe).
For instance, if you are able to claim $2,000 in tax deductions, your new taxable income is $28,000 instead of $30,000.
You still made the same amount of money, but now you are getting taxed on a smaller amount of it. Pretty neat.
7 Common Tax Deductions
Last year when I filed my taxes, I got a $1,345 federal refund. Deductions played a big part in helping me that number up so high.
How did I know which tax deductions I could use? Since I’m not an accountant or tax expert by any means, I’ve always used tax software to help guide me along and make sure I get every deduction available to me.
Even missing one deduction is money left on the table!
Product Recommendation: I’ve used TurboTax ever since I first started filing taxes as a 16 year old working at McDonald’s, and my experience with them has always been easy and pain free. You can even get started for free.
Note: TurboTax was also chosen as the best small business tax software by FitSmallBusiness.com for 2018.
So without further ado, here are 7 common tax deductions that may help you increase your tax refund!
1. Contributions to a Traditional IRA are tax deductible
This is first on my list because it’s one of my favorite tax deductions.
There are quite a few rules on this deduction depending on your income, filing status, etc (which is why programs like TurboTax are a lifesaver — they won’t let you screw up). As a general rule, as long as you are not contributing to a retirement account through your employer, you can deduct any money you put towards a Traditional IRA, up to your yearly contribution limit of $5,500 ($6,500 if you’re age 50 or older).
What this means for you: If you have extra cash on hand and want to start investing for retirement, now is the time to do it. Assuming you meet the criteria for this deduction, if you put $1,000 in a Traditional IRA, for instance, you can reduce your taxable income by the same amount.
2. Student loan interest deduction
Student loans are the bane of my existence. I cannot wait until the day mine are gone for good!
Until then, I’m able to use the student loan interest tax deduction to reduce my taxable income each year.
You can deduct up to $2,500 of student loan interest paid in a given year. My student loan interest was only a few hundred dollars last year, thankfully. Still, every little deduction adds up!
As with most deductions, there are certain rules that apply with this one.
3. Health insurance premiums, deductibles, copays, and coinsurance
If all of these together account for more than 10% of your adjusted gross income, you can deduct the the amount that is in excess of 10%. Here is more information on deducting medical expenses on your income tax return.
4. Health Savings Account (HSA) contributions are tax deductible
Health Savings Accounts are becoming quite popular as health care costs continue to increase.
Your HSA contributions are tax deductible (that’s the whole point of using them). In addition to using the money in your HSA to reduce your tax liability, the money inside the account can grow tax free!
Other Common Tax Deductions
I’ve only started to scratch the surface on all the possible deductions that may apply to you. Here are a few more that are common:
5. Mortgage interest tax deduction
If you’re a homeowner and you itemize your tax deductions, this may be the biggest deduction you claim every year. If you are paying interest on your mortgage, you can deduct the amount paid in interest from your taxable income.
You can also deduct costs from other aspects of home ownership, like property taxes.
6. Ride-share driver tax deductions
Since there are expenses involved with a ride-share side hustle, that means there’s an opportunity for tax deductions as well. As a driver, you can deduct actual expenses of operating your vehicle for business, including gas, oil, repairs, insurance, maintenance and depreciation or lease payments.
You can get the full scoop on all the deductions available to ride-share drivers here.
See Also: $300 Signup Bonus for New Lyft Drivers
7. Charitable donations
Biggest thing here is to be sure to document everything!!
As long as you play by the rules, charitable donations can do some good for the world while at lowering your tax burden at the same time.
Here are some things to keep in mind:
- You must actually donate cash or property.
- You must contribute to a qualified tax-exempt organization.
- You must keep solid records of every donation you make.
Want even more tax deductions?
Well if you insist, here is the IRS’s complete list of available tax deductibles plus all the rules associated with each. There’s a lot there — you’ve been warned!
If you are looking for an alternative to doing all this yourself, you are much better off leaving this to the experts (ie, tax software). If you want to preserve your sanity, save a lot of time, and get the biggest tax refund possible, consider starting with the free version of TurboTax.
Legal Note: This article is for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any transaction!
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