Tax Deductions Most People Forget
Every year billions of dollars are left in the government's hands because of forgotten tax deductions. If you're cool with that, feel free to hit the back button. If you'd rather get back more of that money, then keep on reading.
The Standard Tax Deduction
Itemizing your taxes can get you a larger return, but it is also a ton of work. So, before you invest the time, is it useful to ask yourself if you think that itemized amount would be larger than the standard deduction amount. The standard deduction is the government's estimate as to how much most American's should be deducting. Here are the standard deduction amounts for filing in 2020.
| Filing Status | Standard Deduction 2019 | Standard Deduction 2020 | |
|---|---|---|---|
| Single | $12,200 | $12,400 | |
| Married - Filing Jointly | $24,400 | $24,800 | |
| Married - Filing Separately | $12,200 | $12,400 | |
| Head of Household | $18,350 |
|
Common Itemized Tax Deductions
1. Charitable contributions
This obviously includes any cash donations, but people more frequently forget that they can deduct the "fair market value" of the items they donate. For example, you donate your old computer to Goodwill. They will be required to provide you a receipt with the fair market value of the computer. That dollar amount can be deducted.
Fair market value isn't a fixed amount. Rather, it is what you could realistically expect someone to pay if you were to try and sell it. In the above example, the fair market value wouldn't be what I paid to buy the computer when it was brand new. It would be closer to what I could get for it if I were to put it on eBay.
You can deduct up to 60% of your adjusted gross income with charitable contributions.
2. Medical expenses
If you have had a major medical or dental expense, there is a chance you could deduct part of it. The expense must exceed 7.5% of your adjusted gross income in order for it to qualify as a deduction.
3. Home deductions
There are several tax benefits to owning a home. Three common home-related deduction are:
- Mortgage points (charges paid to obtain a home mortgage)
- Property Taxes
- Mortgage Interest (You can deduct home mortgage interest on the first $750,000 of debt.)
4. Education expenses
Did you do any schooling or training for your work? If it was work related (meaning you needed it to keep your current job or to further your skills in your existing career) then you can deduct tuition, book, supplies, fees, and even some of your travel expenses.
If you have student loan debt, you can deduct up to $2,500 in interest payments each year. This even counts if your parents are the ones who paid it (as long as they don't claim you as a dependent).
5. Job hunting
Looking for a new job can be expensive. You might have to hire someone to help write your resume, pay to print it off, then to mail, or even to hire an agency to help you find a new job. These expenses can be deducted.
6. Business-related expenses
Costs you incur due to your employment can also be a tax deduction. For example, if you have to go on a business trip and you get charged a fee for checking your bags, that fee is deductible. Did you do laundry while on that trip? Deduction.
You can also deduct operating expenses associated with your vehicle if you use it for business. This could be things like tolls, insurance, repairs, or new tires. If you split the use of this vehicle between business and personal use, then you would need to also split those expenses (typically by miles driven for each purpose). Personal expenses cannot be deducted. When calculating your auto deductions, you can also choose to use the
Standard Mileage Rate. For 2020, the rate for businesses' use of a vehicle is 57.5 cents a mile.
7. Sales and income tax
You have the option of claiming either state and local income taxes or state and local sales taxes. Not both. Your total possible deduction for this category is $10,000 for a joint filing and $5,000 for an individual.
Figuring Out Your Adjusted Gross Income (AGI)
You might have noticed that many of these deductions are only applicable based on or have limits related to your Adjusted Gross Income (AGI). To figure out your AGI, first figure out your total income. Basically, this is anything that you would receive a W-2 or 1099 for, things like your salary, alimony, social security benefits, or capital gains. From that total, subtract all your deductions. The resulting number is your AGI.