Because the IRS extended the tax deadline by three months in 2020, it might seem like you were filing your taxes just the other day. However, it’s time to start thinking about paying taxes again, as there is no indication the yearly April 15 deadline will be moved again. Before you file, it’s worthwhile to ponder the deductions available to you. Many taxpayers are not aware of the numerous deductions and credits available to them in any given tax year. While things like the Earned Income Tax Credit are quite widely known, there are a few that often fly under the radar. We’ll cover six of these deductions below.
- Charitable deductions. This goes for more people than the multi-millionaires and billionaires who make large donations that make the news. Regular, middle-class people who are stirred to service may be able to deduct a larger amount of charitable expenses than they once realized. Every item you donate to an approved charity can be deducted. You can even deduct 14 cents for every mile driven for charity in 2020.
- State sales taxes. Washington taxpayers enjoy not having to worry about filing state income taxes. The state makes up the difference in sales taxes, however, which means Washington residents can use state sales tax to reduce their federal taxable income. You generally have the option of deducting the total amount of sales taxes you paid in 2020 or simply use the IRS tax tables.
- Retirement Savings Contribution Credit. Contributing to certain retirement accounts (like a 401(k) or Roth IRA through eligible brokers) is often an effective way to reduce your taxable income with the IRS. Depending on how you are filing (single, jointly as a married couple, or head of household) and the amount of your adjusted gross income, you can deduct between 10 and 50 percent of your total contributions.
- Deductions for medical expenses. If your out-of-pocket medical expenses exceeded 7.5 percent of your adjusted gross income in 2020, you can deduct the amount you paid over the 7.5 percent threshold (expenses for which your insurance reimbursed you aren’t eligible). Taxpayers who itemize deductions can use the medical expense deduction.
- Student loans interest deduction. As long as you’re not a dependent on someone else’s tax return, you can deduct up to $2,500 of interests in student loans on your taxes. A recent development here is that you don’t have to be the one liable for the debt to take advantage of this deduction. In other words, you can pay for your spouse’s or child’s student loan interest and deduct it from your taxable income.
- Fees for tax preparation (for businesses). While you aren’t able to include tax preparation fees as an itemized deduction on your personal tax return, businesses may still deduct these costs on Schedule C. Tax preparation software, electronic filing fees, and other expenses apply here.
Call Our Firm For Legal Counsel on Taxes
We applaud your initiative to wade through the morass of tax laws to figure out ways you can reduce your taxable income. Sometimes, though, the IRS aggressively investigates instances of taxpayers’ using perfectly legal deductions and credits. If you need an experienced attorney to set the record straight, we would be honored to provide that presence for you. To discuss your options with the legal team of Robert V. Boeshaar, Attorney at Law, LL.M, fill out our contact form to set up a consultation.
Robert V. Boeshaar Attorney at Law, LL.M.,PLLC
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