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Tips for Making the Most from Your Tax Deductions

Posted July 18, 2019 by EasyFinance.com to Taxes 1 0

Most of us know tax deductions are good, but not many taxpayers can tell you how to maximize your deductions. In this post we’re giving you tips and tricks to help you figure out which deductions will get you the most bang for your buck and how to claim them on your next tax return.

What is a tax deduction?

A tax deduction is a type of initiative that federal and state governments use to help taxpayers save on their total tax liability. How does a tax deduction work? When you claim a deduction on your state or federal tax return, the government subtracts money from your taxable income so that you can be taxed at a lower rate than if you had not claimed the deduction. Every tax deduction has a different value, so one might save you more money than another. To determine which deduction might get you the most ‘bang for your buck,’ you might consider hiring a local tax preparer.

Plan ahead

If you want to make the most of your deductions this tax season, you should start by doing a little research to see which deductions you might qualify for. This step will help you figure out which deductions can save you the most money and what documentation you need to obtain for the deductions you’re going to claim on your tax return.

Some of the most common itemized deductions include:

  • Charitable contributions

  • Home mortgage interest

  • Medical expenses

  • Business use of your home

If you do not qualify for any of the itemized deductions offered by the federal and state government, you might be able to claim the standard deduction instead. The standard deduction works the same as the itemized deductions we discussed above, but instead of claiming each one individually, the standard deduction is a predetermined amount that’s based on your filing status and income.

The federal standard deduction for 2019 is:

 

Filing status

2019 standard deduction

Increase from 2018

Married filing jointly

$24,400

$400

Married filing separately

$12,200

$200

Single

$12,200

$200

Head of household

$18,350

$350

 

In addition to tax deductions, there are also tax credits which reduce your tax bill dollar for dollar—rather than just reducing the amount of your taxable income. Both the federal government and state governments offer tax credits to help taxpayers save on their total tax bill.

Some of the most common tax credits include:

  • Earned Income Tax Credit (EITC): The EITC is a federal credit that’s offered to low to moderate income taxpayers. Many states also have their own EITC credit, too.

  • Lifetime Learning Credit: This credit is designed to offset the costs of post-secondary education for taxpayers who make less than $57,000 per year (single filer), or $114,000 (married, filing jointly).

Keep proper documentation

In order to legally claim certain tax deductions, you’ll need to include receipts or some documentation to back up the information you report on your tax return. Use a receipt tracking app to help you manage your documents so that you have them on hand in the event of an IRS audit.

File your taxes efficiently

There are a few different ways to file your taxes: 

  • DIY: The first option to file your taxes is to do them yourself. Depending on how complicated your tax situation is, this may be a breeze or it may be very challenging if you have a lot of deductions to claim. You can file both your federal tax return by filing Form 1040 along with any additional forms that the IRS requires you to file. As for your state taxes, you will need to look at your state’s tax regulations in order to determine which forms are required of you. 

  • Tax software: Using a tax software program is one of the most popular ways to file your taxes, but not all programs are created equal. In order to find the best option for you, you may want to conduct a professional tax software comparison exercise.

  • Tax professional: Finally, the last option you have to file your taxes is to hire a professional tax preparer. Professional tax preparers are trained on federal and state tax regulations and can help taxpayers save money on their taxes by taking advantage of deductions they qualify for.

Key takeaways

In order to make the most out of your tax deductions, follow these guidelines:

  • Plan ahead

  • Keep proper documentation

  • File your taxes efficiently

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