Taxes can be a headache as they drain away a lot of your hard-earned money. You can't hide or avoid it, but what you can do is make sure that you are taking all the tax deductions you are legally allowed to.
Believe it or not, there are actually many tax deductions out there that you might not be aware of. If you can identify those deductions, you can save money and use it for other purposes.
Here is a list of 12 tax deductions you can claim to maximize your savings without itemizing.
1. Student Loan Interest
The student loan interest deduction is a valuable tax benefit for those who have taken out student loans to pay for their education. This deduction allows you to reduce your taxable income by up to $2,500, which can result in significant savings on your tax bill.
Importantly, this deduction is available even if you don't itemize deductions on your tax return, making it accessible to more taxpayers.
To claim this deduction, you must have paid interest on a qualifying student loan during the tax year, and there are income limits that determine the amount of the deduction you can claim.
2. HSA Contributions
HSA means Health Savings Account. Contributions to your HSA are tax-deductible, and you can use the money in the account for qualified medical expenses such as doctor visits, prescriptions, and more.
Best of all, you don't need to itemize deductions on your tax return to take advantage of this deduction. It's a very common deduction, so take advantage of it if you have an HSA.
3. Employer Retirement Contributions
If your employer offers a retirement plan, such as a 401(k) or 403(b), you may be able to deduct a portion of the contributions you make to that plan.
The amount you can deduct will depend on the type of contribution and your income level, but any deduction is better than none. This deduction is available even if you don't itemize your taxes, so take advantage of it.
4. Self-Employed Retirement Contributions
Like traditional IRA contributions, self-employed retirement contributions can reduce your taxable income by up to $6,000 per year ($7,000 if you're over 50).
The main difference is that these contributions come from your business or other self-employment sources. These contributions are also available even if you don't itemize deductions on your tax return.
However, a few additional rules apply to self-employed retirement contributions, so consult with a qualified tax advisor before making any decisions.
5. Early Withdrawal Penalties
Early withdrawal penalties are fees charged by financial institutions for withdrawing money from certain accounts before a specific period. Early withdrawal penalties generally apply to retirement accounts such as 401(k)s and IRAs.
These penalties discourage individuals from accessing their retirement savings before retirement age.
Regarding taxes, early withdrawal penalties are treated as tax deductions. This means you can claim the penalty as a deduction on your taxes without having to itemize deductions.
6. Alimony Payments
Alimony payments are tax-deductible payments to an ex-spouse as part of a divorce settlement. The individual who pays the alimony can claim these payments as deductions, while the ex-spouse who receives them must report them as income on their tax return.
It's important to note that not all payments made as part of a divorce settlement qualify as alimony for tax purposes, and specific requirements must be met to claim this deduction.
7. Charitable Donations
Charitable donations are a popular tax deduction allowing individuals to deduct charitable contributions' value from their taxable income.
To claim this deduction, the donations must be made to qualified charitable organizations, and taxpayers must itemize their deductions on their tax returns.
It's essential to keep records of all charitable donations, including receipts or acknowledgments from the charity, to support these deductions. Charitable donations can be a great way to support worthy causes while reducing your tax bill.
8. Medical Expenses
Medical expenses can be tax-deductible if they meet specific requirements. To claim this deduction, you must itemize your deductions on your tax return and have medical expenses that exceed a certain percentage of your adjusted gross income.
Deductible medical expenses include doctor's visits, hospital stays, medications, and medical equipment.
9. Educator Expenses
Educator expenses are tax deductions available to eligible teachers and other educators. These expenses include books, supplies, and computer equipment used for educational purposes.
To claim this deduction, the educator must work in a qualified educational setting and have incurred these expenses.
To support this deduction, it's essential to keep accurate records of all educator expenses throughout the year, including receipts and invoices.
10. Moving Expense
Moving expenses can be tax-deductible if you meet specific criteria – to claim this deduction, the move must be work-related, and your new workplace must be at least 50 miles farther from your old home than your previous workplace.
Deductible moving expenses can include things like transportation costs, storage fees, and lodging expenses. To support this deduction, it's essential to keep accurate records of all moving expenses, including receipts and invoices.
11. Job Search Expenses
If you are unemployed and looking for a new job, you can deduct certain job search expenses from your taxes.
Deductible expenses include resume preparation services, fees for employment agencies, and travel costs related to job interviews.
To claim this deduction, the taxpayer must itemize deductions on their tax return and have spent the money searching for a job in the same field as their previous employment.
12. State and Local Taxes
And lastly, state and local taxes are standard tax deductions available to taxpayers who itemize deductions on their tax returns. This includes both income taxes and sales taxes paid throughout the year.
In most cases, you can only deduct state and local taxes up to a certain amount each year, so check with your tax advisor for more information.
Saving Money on Taxes
These are just a few of the many deductions and credits available to taxpayers at tax time. It's important to review your options carefully and consult with a qualified tax advisor before deciding which deductions to take advantage of. Careful planning can maximize your tax savings and reduce your overall tax burden.
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I’m Steve. I’m an English Teacher, traveler, and an avid outdoorsman. If you’d like to comment, ask a question, or simply say hi, leave me a message here, on Twitter (@thefrugalexpat1). Many of my posts have been written to help those in their journey to financial independence. I am on my journey, and as I learn more I hope to share more. And as always, thanks for reading The Frugal Expat.
