During tax season, it sometimes feels like we’re giving away all our hard-earned cash to the government.
Not true.
We’re required to pay taxes on our income, but there are legal ways to reduce the amount of income that Uncle Sam can tax.
Deductions are a taxpayer’s best friend.
What Is a Tax Deduction?
You’re allowed to deduct several types of personal expenses from your taxable income each year.
“This can really pay off during tax season because the reduction to taxable income reduces the amount of income that is subject to federal income tax,” explains Intuit.
But don’t confuse tax deductions with tax credits — they are two entirely different things.
Deductions are expenses you incurred throughout the tax year that you can subtract from your taxable income. Deductions lower your tax bill by reducing the amount of money you pay taxes on.
Credits reduce the amount of taxes you owe. Credits are the coupons of tax law. A credit is a dollar-for-dollar reduction in the amount you owe.
I know this can get confusing, but hang in there. Deductions are about to become clear in a minute (well, as clear as tax law can ever be).
Show Me Some Examples of Deductions
Many things qualify as deductions on your taxes — probably more than you’d expect.
Let’s look at some real-world examples of tax deductions.
- Charitable contributions you make to an exempt organization.
- The home office you use for freelance gigs.
- Payments you make into certain types of retirement accounts.
- Standard mileage if you use your personal vehicle for work.
- Relocation expenses if your new job required you to move a new city or state.
- Interest you paid on your student loans.
- Passport fees if your work required you to travel overseas.
- Refreshments you give to your fares as an Uber or Lyft driver (seriously).
There are many more deductions available to taxpayers, so be sure to take a look at the IRS website for a comprehensive list.
Should I Itemize or Take a Standard Deduction?
If it’s too much of a pain to figure out what deductions you’re eligible for, you don’t have to itemize them one by one.
It’s perfectly OK to take a standard deduction and call it a day.
Just remember that your tax return may be smaller than if you’d itemized your deductions one by one.
Doing taxes is a drag, but at least we can deduct some of the things we spent money on during the year from our taxable income.
Uncle Sam’s not such a bad guy after all.
Your Turn: What’s the most interesting deduction on your tax return?
Lisa McGreevy is a staff writer at The Penny Hoarder. She likes bringing you this information, but she is not a tax preparer, and this is not legal tax advice.
The post 9 Expenses That Are Tax Deductible (Sorry, Your Dog Isn’t One of Them) appeared first on The Penny Hoarder.
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