Tax deductions allow you to subtract certain expenses from your taxable income, thus reducing the amount of tax you owe to Uncle Sam. The tax system wants you to add all the deductible expenses along with pieces of evidence and submit to the IRS.
Most people think that the deductions are just for the rich and the famous, but that’s not the case. There are several tax deductions and credits available to middle and lower-income taxpayers as well. You can calculate your tax bill by pitching in all the deductions with the US tax calculator and can estimate your tax return and withholdings as you earn throughout the tax year.
It can be painful when you realize that you missed a tax deduction that would have reduced your tax bill or increased your tax refund. Here are some of the commonly overlooked tax deductions:
Health insurance premiums
Medical expenses can shake any budget and is also the main reason for bankruptcies. Health insurance has become mandatory under the terms of the Affordable Care Act. The IRS has been somewhat sympathetic to the cost of insurance premiums.
The cost of health insurance is included among other expenses eligible for the medical expense deduction. It is limited to the amount of your overall costs that exceed 7.5 % of your adjusted gross income (AGI) in 2018 to be claimed as an itemized deduction. However, it’s planned to return to 10 percent in 2019.
Educator expense deduction
Teachers often make out-of-pocket expenses for the classroom. This is a primary tax break for teachers, which can be claimed regardless of whether they take the standard deduction or itemize their tax deductions. It allows the teacher to deduct a maximum of $250 per tax year. Further, if two married teachers filing a joint return, then they can claim a deduction up to $250 each, making a maximum of $500.
Items that can be claimed under educator expense deduction include school supplies, books, athletic equipment for physical education teachers, computer hardware and software.
Lifetime Learning Credit
The tax code offers deductions to college students as well as to the person who has already graduated. The Lifetime Learning credit can be claimed, if you, your spouse, or any of your dependents are enrolled at an eligible educational institution, for which you were responsible for paying college costs.
This provides up to $2,000 per year and collect up to $10,000.
Indeed, gambling losses are tax-deductible, but only to the extent of your reported gambling income or your winnings. It requires you to report all the money won as taxable income on your tax return. The deduction on your claim is deductible only if it is itemized whereas a standard deduction can’t reduce your tax due to your gambling losses.
The deductible amount of gambling losses can never exceed the number of winnings you reported. For example, if you have $8,000 in winnings and $10,000 in losses, your deduction is limited to $8,000 only. The remaining $2,000 in gambling losses can be carried forward into future tax years.
You have the option of deducting state and local sales tax or state taxes paid during the tax year but not both. Under the new tax law, a state and local tax payment for federal income tax purposes is deductible up to $10,000 per year. If you live in a state with no income tax, this can be considered as a big money saver. The US tax calculator can help figure out the deduction, which varies by your state and income level.
You have to itemize in order to take the deduction according to the tables provided by the IRS. If you purchased a vehicle or airplane, the amount of the state sales tax can be added to the amount shown in IRS tables. This applies to home building material as well. These items are easy to overlook.
Keep the above-mentioned deductions in mind when filing your tax return and avoid overpaying your taxes by inadvertently overlooking them. Claim all the deduction you deserve and keep the money in your pockets. It’s your money, tax deductions are there to ensure you get a fair deal when submitting your annual tax return.