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6 Tax Deductions You May Not Know About
Updated on 02/24/2023
Do you expect a tax refund this year? Whether you get money back or owe taxes to the IRS can have a huge impact on how you feel during tax season. One important factor in determining the amount of your expected refund is the tax deductions you qualify for.
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These deductions can have a significant impact on your federal income tax return and potentially save you a lot of money. But before you can claim a deduction, you’ll have to know how they work and how to qualify.
What is a Tax Deduction?
A tax deduction is a factor that reduces your taxable income and liability. Once your total tax deduction is calculated, it’s subtracted from your taxable income. The lower your taxable income, the lower amount of taxes you are expected to pay. As a result, you’ll owe less money to the IRS throughout the year, or receive a bigger tax refund.
The 2022 Tax Year Standard Tax Deduction
Everyone who files a federal income tax return can claim the standard tax deduction. This deduction changes slightly each year to account for changes in cost of living and inflation, and is based on your tax filing status. Additionally, senior citizens over the age of 65 and individuals who are blind receive larger standard deductions, regardless of their filing status.
The standard tax deductions based on filing statuses for the 2022 tax year (which you file in 2023) are:
- Single: $12,950
- Married, Filing Jointly: $25,900
- Married, Filing Separately: $12,950
- Head of Household: $19,400
- Widow with dependent: $25,900
6 Additional Tax Deductions You May Not Know About
It’s not uncommon to qualify for more than the standard tax deduction. If you want to save more money come tax time and receive a larger refund, here’s a look at six additional tax deductions you may not know about.
1. Student Loan Interest Deduction
If you are paying student loan interest, you may qualify for a tax deduction. The amount of interest you can deduct from your taxes is based on your modified adjusted gross income (MAGI).
To qualify for the student loan interest deduction, you’ll need to have paid interest on a federal or private student loan and meet all of the following criteria:
- You used the loan for education and other qualifying expenses, such as transportation, room and board, and books
- You are legally obligated to repay the loan
- You took out a loan for your own education or for a dependent
There’s no limit to the amount of years you can qualify for the student loan interest deduction. So long as you’re within the income limits, are repaying a qualified loan, and you meet all eligibility requirements, you can continue to claim this deduction year after year.
2. Charitable Donations Deduction
Do you donate to charity? You may qualify for a charitable donation deduction. This deduction allows you to deduct a maximum of 60% of your adjusted gross income (AGI). However, you’re limited to between 20 and 50% of your donation, depending on the organization to which you contributed and the type of contribution you made.
Usually, this deduction requires you to file an itemized return. However, the 2021 tax year allows tax filers to receive a deduction of up to $300 per person without having to complete an itemized form.
3. State and Local Tax Deductions
Do you need to file a state tax return? Not all states require residents to file, because not all states charge income tax. However, should you need to file a state tax return, it’s worth taking a look at state and local tax deductions you might qualify for.
Taxpayers with single or married filing separately statuses can deduct up to $5,000 ($10,000 for married filing jointly) in property taxes, state taxes, local income tax, or sales tax.
4. Medical Expenses Deductions
If you have unreimbursed medical expenses, be sure to keep your invoices, because you may qualify for a medical expense deduction. Your deduction amount is based on your adjusted gross income and the amount of medical expenses you have.
For the 2022 tax year, you can deduct your qualifying medical expenses beyond 7.5% of your AGI.
5. Mortgage Interest Deductions
Mortgage interest deductions are designed to make the cost of homeownership more affordable. This deduction reduces federal income tax for qualifying homeowners by the amount of mortgage interest they pay. To receive this deduction, you’ll need to keep good records of your mortgage and mortgage interest payments.
To qualify for a mortgage interest deduction on your first home, you must meet the following guidelines:
- Your home is a house, apartment, condo, mobile home, trailer, houseboat, or co-op
- Your home is collateral for your mortgage
- Your home must have cooking, toilet, and sleeping facilities and areas to qualify
6. Self-Employment Expenses Deductions
If you’re self-employed, there are several tax deductions you may qualify for. Some of the most common self-employed deductions include the following:
- The Home Office Deduction: If you are self-employed and have a home office within your home, you can receive a deduction on a portion of your mortgage, rent, utility costs, repairs, property taxes, and other housing expenses.
- Health Insurance: Not every self-employed worker receives a deduction for their health insurance, but many of them do. If you purchase your own health insurance and pay for your policy out of pocket, you may be able to deduct your insurance premiums for yourself, your dependents, and your spouse.
- Continued Education: For continued education to qualify for a self-employment deduction, the education you receive must be work-related education that aims to improve or maintain the skills you need to remain in your present line of work.
- Retirement Savings: When you have an employer, you don’t pay tax on your retirement savings until they are withdrawn. Retirement savings self-employment deductions are a way to provide similar benefits.