taxes

Deductions you can make to save on your taxes

While it is essential to be honest and pay your taxes, there is no point in paying too much. We are all allowed several deductions that are designed to ease the tax burden. It would be foolish not to take advantage of these opportunities. Before you can, however, you need to be aware of them and how they work. Here are a few of the important deductions you can make to save on your taxes.
Many people are intimidated by the concept of taxes and doing their tax returns. It is not as complicated as most imagine and all it takes is a bit of knowledge and understanding. What is important to know is the deductions that are available to you. These allow you to legally and ethically pay less tax.
The tax laws do change from time to time, so it is vital to keep up to date with developments. There were several changes in tax brackets and regulations in 2018 and there will without doubt be more in the future.

The definition of a tax deduction

It is a dollar amount for certain expenses that the IRS permits you to take off your AJI or adjusted gross income. This will lower your taxable income and allow you to pay less tax. They are perfectly legal and one should take advantage of the allowable deductions to reduce their tax burden.

What deductions are allowed?

There are numerous deductions but here are a few of the most important ones:

➢ Medical expenses

This a major and often unexpected expense for many people. While there are a few expenses not included, most medical expenses that exceed 10% of your AJI can be deducted. This is helpful if you have had major medical expenses such as operations or childbirth. Cosmetic surgeries are one of the examples of deductions that are not permitted, so check on the rules before any elective medical costs.

➢ Your 401(k)

This is a significant deduction that should be used to your advantage. Money put into your 401(k) is deducted and therefore not taxable. You can put up to $19,000 into your 401(k) every year, tax-free. This makes saving for your golden years more affordable and attractive. Those 50 or older are allowed to contribute an additional $6,000 per year.

make to save on your taxes

➢ IRA Contributions

This will depend on several factors and there are limits. If you do contribute or plan to contribute to an IRA it is worth investigating to see what deductions you qualify for.

➢ College savings or interest on student loans

If you have children it is essential to try and save for their education. Fortunately, the IRS will help to make this a bit easier. You can achieve these savings through a 529 plan or other state or educational institution plans. If you are paying off a student loan, you can deduct the interest paid up to $2,500.

➢ Mortgage interest

As a way to encourage home ownership, certain deductions can be made based on the interest paid on a mortgage.

➢ Residential energy

Not only is alternative energy better for the environment and more affordable in the long run, but there are also tax benefits. Solar energy installation costs and other expenses could allow you to claim back as much as 30% of the price as a tax deduction. These are just a few of the deductions allowed. One would need to invest a bit of time in finding out the full extent of the options available. If you are self-employed, there are many more deductions available.

Final thoughts

There is no point in paying more tax than necessary. Understand the deductions available to you and you will save on your tax costs.

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