As an individual, filing taxes can be a daunting task. Whether you are preparing your taxes by yourself or seeking the assistance of a professional, it can be easy to overlook certain deductions that could potentially save you a substantial amount of money.
Charitable Contributions
Donating to a qualified organization can be a significant tax benefit, but many taxpayers forget to keep track of their charitable donations throughout the year. When donating, make sure to gather receipts or other proof of donations made. It’s important to note that deductions may be limited based on your income level and the type of charity to which you donated. If you donated clothes or household items, you would need to get a receipt from the charity that specifies the items donated.
Job Search Expenses
If you were searching for a new job in the same field as your previous employment, you may be eligible to deduct job search expenses such as transportation, employment agency fees, and even the cost of printing resumes.
To claim this deduction, the job search expenses must be related, and you must find employment afterward. Deductions for job search expenses can only be claimed for the year in which the expenses are incurred. Your job search does not have to be successful to claim the deduction, but you must be searching for a position in the same trade or business as your previous employment.
Home Office Expenses
It is important to understand that the IRS has certain requirements when it comes to claiming home office expenses. The home office must be used regularly and exclusively for work purposes. This means that it cannot be a shared space and is only used for work. If you qualify, you’ll be able to claim deductions for certain expenses such as mortgage interest, utility bills, home insurance, and home maintenance fees.
Another home office expense you should consider is office supplies, such as stationery and equipment. These items are fully tax-deductible and can include things like pens and paper, desktop computers, laptops, printers, and software. Keep track of all your expenses and make sure you keep all receipts to back up your claim. You may also be eligible to claim deductions for travel expenses. Keep track of all your business expenses to ensure you can claim these expenses on your taxes.
Medical Expenses
According to the IRS, eligible expenses include costs related to the diagnosis, cure, mitigation, treatment, or prevention of disease. It also includes the cost for treatments affecting any part or function of the body. This can cover fees for doctors, dentists, and other medical professionals, as well as hospital and nursing home care, prescription medications, and certain equipment like crutches or wheelchairs. Additionally, you can also deduct expenses related to transportation for medical treatment, including mileage for driving your own car or expenses for public transportation or ambulance services.
It’s important to note that to claim the deduction for medical expenses, you must itemize your deductions on your tax return. This means that you will need to keep track of all your medical expenses throughout the year and be able to provide documentation if requested by the IRS. Additionally, you can only deduct expenses that exceed 7.5% of your adjusted gross income.
While this may seem like a high threshold, many individuals and families can easily surpass it, especially if they have significant medical needs. For example, if you or a family member had a hospital stay or surgery during the year, the associated costs alone could easily reach or exceed this threshold. Additionally, if you have ongoing medical conditions that require frequent doctor visits or treatments, these costs can quickly add up over time.
It’s also worth noting that the deduction for medical expenses can be especially valuable for older adults who may have higher healthcare costs. This is because individuals who are 65 or older can use a lower threshold of 7.5% of their income to claim the deduction. This can make it easier for them to potentially reap larger tax benefits.
IRA Contributions
Contributing to an IRA can result in significant savings on taxes while setting yourself up for long-term financial stability. It lowers your taxable income as you can deduct your contributions from your income before calculating the taxes. If you are in a high tax bracket, making an IRA contribution can reduce your tax liability.
Compounding
Investing in an IRA allows your contributions to grow tax-free until the time of withdrawal. This means, over time, you can earn higher returns and compound them without worrying about taxes until you withdraw your funds. The earlier you invest in an IRA, the longer your contributions can benefit from compounding. If you start investing in your early career years, you could potentially earn more returns as your investments grow over time.
Flexible Investment Options
Another advantage of contributing to an IRA is the flexibility it offers in terms of investment options. There are several types of IRA accounts available, and depending on your investment goals, you can choose solutions that align with your investment goals. IRA contributions could be invested in a diversified portfolio of stocks, bonds, mutual funds, or ETFs, which can potentially provide higher returns than other tax-advantaged accounts.
Catch-Up Contributions
If you are 50 or older, you can make additional contributions to your IRA account, known as catch-up contributions. These are additional contributions that can potentially help you maximize your retirement savings and lower your taxes. IRA contributions are subject to contribution limitations and deadlines. Remember to make contributions by the tax deadline.
Filing taxes can be a complex process with many potential deductions available. Rely on professionals like Hayes & Associates to achieve your financial goals and ensure that you aren’t missing any potential deductions when filing your taxes. By keeping clear records and seeking the assistance of a tax professional if needed, individuals can maximize their tax benefits and potentially reduce their tax liability.
