Lowering your tax bill means more money in your bank account. One way to do this is through tax deductions. By taking advantage of deductions, you lower your annual income in the eyes of the IRS. You can understand tax deductions with very little effort. Here are the basics on tax deductions.
Understand the Standard Deduction
You don’t have to be a tax professional to claim the standard deduction. This is a fixed deductible amount available to everyone, but changes based on filing status. The amount can vary year to year because of changes in the tax bill approved by congress. The most significant change in the standard deduction occurred in 2018 when the amount almost doubled.
Get Familiar with Above-the-line Deductions
Don’t let the fancy accounting term intimidate you. Above-the-line deductions are simply deductions that are subtracted from your gross income. You can take these deductions whether or not you itemize. To understand which deductions you may qualify for, it’s a good idea to talk to a professional. Many financial planning services Walnut Creek CA are qualified to help you understand these essential tax deductions.
Decide if You’re Itemizing
Itemization of tax deductions has decreased drastically since the standard deduction increase in 2018. However, if you have many qualified deductions, it can be worth the time and effort to itemize. Popular deductions for itemization include home mortgage interest, student loan interest, state and local income tax, and personal property tax. Run a quick calculation of the numbers before committing to itemization to make sure the time spent will result in a lower tax bill.
Everyone can benefit from a bit of time spent thinking about their tax deductions. Don’t miss out on a lower tax bill because you think the task is too complicated to figure out. Professional help is always available and can save you significantly.