There are many personal tax deductions to consider before paying it. It is a common practice of wise taxpayers to avoid neglecting these personal tax deductions. Let us tackle it one by one.
1. Mortgage interest and property taxes.
The popularity of mortgage interest and property taxes as personal tax deductions is notable these days.
When it comes to the mortgage interest deduction, you can only deduct the mortgage interest and not the principal, the one that you pay on a loan secured by your first home or even the second one. Before you can claim the deduction, it is important that you will pay the amount you owed and that you actually paid it yourself. For those properties that you own that are not utilized for business purposes, you can deduct any taxes that you pay. In case that you have a mortgage on the property, the yearly mortgage statement or otherwise known as Form 1098 that you receive from the bank should include both the amount you paid in real estate taxes for the year and the interest and points you paid for the year or your mortgage interest deduction.
2. Donations for charity.
If you have donated to a qualified charitable organization, you can deduct any cash or noncash donation from your taxes. It is a requirement to have documents to prove that you donated something, including those you donated below $250. For those donations higher than $250 and noncash contributions, you must obtain an acknowledgment receipt from the nonprofit entity. For property donation over $500, it is necessary to file an extra form with your tax return. Just secure Form 8283, the Noncash Charitable Contributions.
3. Medical expenses and health savings account.
If you have medical and dental expenses, you can deduct the amount that exceeds a specific percentage of your adjusted gross income. The current percentage is 10% that was implemented in 2013, except those individuals who are more than 65 years old who are exempt from the increase until 2017. For instance, the deductions should not exceed $10,000 medical expenses if your AGI is $100,000. The acceptable expenses include both health insurance premiums and out-of-pocket expenses that are not covered by insurance for both you and your dependents. This is only applicable to substantial medical expenses.
For those who have a qualified Health Savings Account (HSA), it is alright to deduct your contributions to the account, and there is no need to pay tax on any interest you earn from the account. In order to have an HSA account, it is important to have a high-deductible health plan that qualifies under the HSA rules. After all, you can use money in your HSA account to pay almost any kind of health-related expense.
4. Child and dependent care
The personal deduction is also applicable if you have to pay someone to care for your child which is under 13 or a dependent needing care so that you can work or look for work. In this case, you may be able to claim a tax credit for the said expenses. Please note that the credit is a percentage of your eligible work-related child or dependent care expenses, ranging from 20% to 35%, depending on your income. Aside from that, there are a dollar limit on the amount of expenses for which you can claim the credit. In this case, the limit is $3,000 of the expenses paid in a year for one person or $6,000 for two or more. Every taxpayer that is eligible for this personal deduction must reduce these dollar limits by the amount of any dependent care benefits provided by your employer that you omit from your income.
5. 401(k) and IRA contributions.
Let us talk about the 401 (k) and IRA contributions. For example, if your boss offers a 401(k), it pays to increase your contributions, especially if your employer matches them. The maximum contribution is $18,000 with respect to both 2017 and 2016. For those who are 50 or older, you can contribute an extra $6,000 per annum.
For IRAs, you can contribute $5,500 pertaining to 2017 and 2016, and deduct that amount from your income. For those who are 50 or older, your contribution may exceed $1,000.
6. Student loan interest.
For student taxpayers, they can deduct up to $2,500 in student loan interest payment every year, for the whole duration of the loan. In this case, income limits that apply should be taken into consideration. In January 2013, this Student Loan Interest Deduction was made permanent by tax legislation as passed by lawmakers.
7. Education expenses.
Education expenses are one of the most popular personal tax deductions. A student may be eligible for the American Opportunity Tax Credit for the amount up to $2,500, or the Lifetime Learning credit, for the amount up to $2,000, which are both for education expenses. In 2013, tax legislation was passed that extended these tax credits through the end of 2017.
Aside from that, you can set up a Coverdell education savings account and contribute up to $2,000 per year (with phase-outs for higher income people). In 2013, these funding were made permanent as part of the fiscal cliff tax legislation passed. The amount you contribute isn't deductible, but distributions from the account for payment of tuition are tax-free. In addition, you can also set up a state-sponsored college savings plan, known as a Section 529 plan. It allows tax-free withdrawals for qualified college expenses.
8. Job expenses.
Many taxpayers who have incurred expenses relating to their jobs or employment have also the privilege to deduct their taxes. If you have incurred expenses on education and training purposes for your current job, you can deduct the expenses to your taxes provided that your boss didn’t reimburse your expenses. This is not applicable if the training is to get a better job later on. However, job hunting expenses, as well as mileage can also be deducted from your taxes.
9. Home office tax deduction.
If you’re a taxpayer and you use some parts of your home to be your home office for your business, you can deduct the expenses you incurred in doing so. Meaning, you may be able to deduct home costs related to that portion such as a percentage of your insurance and repair costs, your mortgage or rent, and depreciation.
Since you should file to tax returns early, it is better to remember these personal deductions for your benefit. It will come handy if it is already time to do it.