This is the part of the tax process we like: determining what you can deduct from your income to reduce what you pay to Uncle Sam.
The government allows taxpayers to exclude some of their income from taxes. The majority of files choose the standard deduction, the amount of which varies depending on your filing status. For those who have high medical expense, mortgage interest, state and local taxes, charitable contributions or other allowable expenses, itemizing can save them tax dollars. There are also some "above-the-line" deductions to which you may be entitled, so read about them here.
What you can expect to learn from this chapter:
- Deductions: the first step to cutting your tax bill
Standard and itemized deductions and the forms you can use with each of them are explained.
- The standard deduction amount
Taking the standard deduction means you can use any form and don't have to track expenses.
- Itemized deductions
If you want to itemize your deductions, you will need to document all of your expenses, perhaps meet thresholds and be aware of some limits.
- Above-the-line deductions
These tax-reducers are named for their place on Form 1040, and they're available for things like interest on a student loan. See what all the deductions are.
Remember the W-4 form where you listed your allowances? Those allowances are called exemptions on the tax form.