Tax-deductible expenses in the United States and how to request them

A deduction reduces the amount of income that is taxed, but a credit reduces your tax bill directly. So here you will understand the tax-deductible expenses in the United States and how to request them.

We know that every dollar counts, for this reason we have written this article especially for you who are in search of accurate information on this subject to save as much money as possible.

for the I.R.S. tax deductions and credits They can help you save huge amounts of money, as long as you know what they are, how they work, and how to go after them. Here you will find a bunch of “tips.

Determining the differences between tax deductions and tax credits will allow you to fully understand the origin of those expenses that you are entitled to request in the United States according to the support of your invoices.

What is a tax deduction?

A tax deduction reduces your taxable income and therefore reduces your tax liability. The amount of the tax deduction is subtracted from your income, making your taxable income less.

You just have to keep in mind that the lower your taxable income turns out to be, therefore the lower your bill will be. taxes.

So what is a tax credit?

A tax credit is a reduction dollar for dollar on your tax bill. Some credits are refundable. Which means if you owe $250 in taxes but qualify for a $1,000 credit, you’ll get a check for the $750 difference.

You should keep in mind that most of the tax credits are non-refundable, which many people don’t consider when looking at the issue of reductions taxes.

As an example, take a look at the simplified example in the table below. Indeed, it is entirely possible that a fiscal credit much more impact on your bill taxes what a tax deduction.

Would you rather have:
A $10,000 tax deduction… …or a $10,000 tax credit?
your taxable income $100,000 $100,000
Less: tax deduction ($10,000 dollars)
taxable income $90,000 $100,000
Tax rate 25% 25%
calculated tax $22,500 $25,000
Less: tax credit ($10,000 dollars)
your tax bill $22,500 $15,000

*Only as an example rate. The United States uses a system of progressive taxes.

How to claim tax deductions?

In general, there are two ways to claim tax deductions: Take the standard deduction or itemize deductions. Always keeping in mind that you cannot execute both.

Take the standard deduction

Basically, the standard deduction it is a reduction of your taxable income without details. In this case, the amount that corresponds to you by right depends on your marital status.

Pay attention to the following table to know the amount of your standard deduction:

Civil status Fiscal Year 2019 Fiscal Year 2020
Single $12,200 $12,400
Married Filing Jointly $24,400 $24,800
Married Filing Separately $12,200 $12,400
Head of the family $18,350 $18,650

People who are blind or over 65 years of age are entitled to a higher standard deduction.

Itemizing deductions

Itemization allows you to reduce your taxable income by taking any one of hundreds of deductible expenses available to those who qualify. The more you can deduct, the less you would pay in taxes.

Should you itemize or take the standard deduction?

Your choice boils down to the following:

– If the standard deduction is less than the sum of the itemized deductions, you should probably break them down and save money.

Keep in mind that the breakdown takes more time, requires more forms, and you will need proof.

– If you standard deduction is greater than the sum of your itemized deductions, it might be worth taking the standard deduction (and the process would be faster).

Note: the standard deduction rose sharply in 2018, so you may find that it’s the best option for you now, even if you’ve broken down in the past.

your software taxes or your adviser fiscal they can run your statement both ways to see which method produces an invoice taxes more low.

Get help from a tax professional – on your terms

A preparer of taxes it can help you get around tough area questions, take advantage of deductions and credits, or just take the work and worry off your hands.

Plus, working with a tax professional has never been easier. You can file your documents online and have someone do your statement, or you can search for professionals in the area based on specialty and qualifications.

Which option suits you?

Find me a tax professional I can work with online

Now let’s see the tax deductible expenses most common in the US.

There are literally hundreds of deductions and credits in US tax matters. Below the most common, you can access the IRS page in matters of credits and deductions for more official information.

Student Loan Interest Deduction

It is possible to deduct up to US$2,500 from your taxable income base if you made interest payments on an educational loan.

American Opportunity Tax Credit

The first $2,000 you’ve paid in educational tuition, books, equipment, and school fees are tax deductible expenses.

Does not apply to maintenance or transportation expenses.

Under this concept you can also deduct 25% of the next US$ 2,000.

Lifetime Learning Tax Credit

You can claim 20% of the first $10,000 you’ve paid for tuition and fees.

Like the previous one (American Opportunity Tax Credit), the Credit “Lifetime Learningdoes not count housing or transportation expenses as eligible expenses.

You can claim the expense for the purchase of books or supplies needed for course work.

Child and Dependent Care Tax Credit

Another claim is 20% and up to 35% of US$3,000 per daycare expenses or similar costs for a child under 13, a spouse, a disabled parent or other dependent, as long as it allows you to go to your place of work.

You can claim up to 35% of a total of US$6,000 for two or more dependents for the same concept.

child tax credit

This allows you to request fiscal credit up to US$2,000 per child and US$500 for other dependents.

adoption credit

During the 2019 fiscal period, this item covers up to $14,080 in adoption costs per child and in 2020, it covers up to $14,300.

Earned Income Tax Credit

Applicable for workers with moderate to low incomes, it will apply if your taxable income is equal to or less than US$ 57,000. Also called (EIC or EITC).

East fiscal credit it can bring you between $538 and $6,660 in 2020, depending on how many children you have, your marital status, and how much you earn.

Charitable Donations Deduction

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If you apply for itemized deductions, you can subtract the value of your charitable gifts, whether cash or property, such as clothing or a car, from your taxable income.

Medical expense deduction

In general, medical expenses are tax deductible expenses. They have to be qualified, unreimbursed, and be more than 7.5% of your adjusted gross income for the tax year.

State and local tax deduction

You can deduct up to $10,000 or $5,000 if you’re married filing separately; if you carry out the payment of income taxes at the state level.

It also applies in the case of a combination of property taxes and state and local income taxes or sales taxes.

Mortgage interest deduction

An incentive that seeks to make home ownership more affordable. All interest on mortgages or home loans are tax deductible expenses in the United States.

Game Loss Deduction

Although not as justifiable, gambling losses and expenses are deductible only to the extent that you earn winnings from gambling.

So if you spend $100 on lottery tickets, they won’t be deductible, unless you win and report at least $100 as well.

You will not be able to deduct more than the amount you earn.

Deduction of contributions to your individual retirement account (IRA)

Other US tax deductible expense are contributions to your traditional IRA, though how much you can deduct depends on whether you or your spouse are covered by a retirement plan at work and how much you earn.

401(k) retirement plan contribution deduction

The IRS will not tax what you put directly from your paycheck into a 401(k) retirement plan.

For 2020, you can funnel up to $19,500 per year into such an account. If you’re age 50 or older, you can contribute and deduct up to $26,000.

These 401(k) retirement accounts are usually sponsored by employers, although self-employed individuals can open their own 401(k).

Contribution tax credit

This represents 10% to 50% of up to $2,000 in contributions to an IRA, 401(k), 403(b), or other retirement plans and up to $4,000 if filed jointly).

You should know that the percentage depends on your marital status and your income.

Deduction of contributions to the health savings account

Contributions to health savings accounts (HSAs) in the US are tax deductible, and withdrawals are also tax-free, as long as you use them for qualified medical expenses.

For 2020, if you have high-deductible health coverage, you can only contribute up to $3,550.

If you have high-deductible family coverage, you can contribute up to $6,900 in 2019 and $7,100 in 2020.

Self-employment expense deduction

There are many valuable tax deductions for freelancers, contractors, and other self-employed individuals.

home office deduction

If you use part of your home regularly and exclusively for business-related activities, the IRS allows you to write off rent, utilities, property taxes, repairs, maintenance, and other related expenses.

Educator expense deduction

Although it is little, if you are an educator you can deduct US$ 250 for expenses of supplies in your occupation.

Residential Energy Credit

Go ahead and install solar energy systems on your property. You can get up to 30% of the installation cost in tax deductible.