We all have to pay taxes, but we all want to keep as much of our money as possible. Knowing how to navigate the complex tax code to your benefit is not easy. Do you know which things you can deduct from your income? Take our quiz to find out what you know about the complex world of tax deductions.
A tax deduction is a dollar amount to be reduced from your taxable income. It can be a business related expense, a credit you receive for having a child, or one of many other possibilities.
H&R Block, a major tax firm, reports that over 4,000,000 Americans per year pay more in taxes than they would if they deducted properly.
The American tax code is extremely intricate. Hiring an experienced professional to prepare your taxes is the best way to ensure it gets done right.
Your gross income is the amount of money you earn before any taxes or other fees are applied. Above the line deductions are applied to your gross income.
Your adjusted gross income (AGI) is what remains of your gross income after you've calculated all above-the-line deductions.
One example of a standard deduction is the $10,000 deduction for married couples.
Rather than accept the standard deduction, some people prefer to calculate their non-taxable expenses and deduct those from their AGI. The things you're allowed to deduct are called itemized deductions.
Essentials like food and clothing do not qualify for itemization, but a uniform for work does.
If you are not declared a dependant by your parents, then you can deduct up to $2,500 of the interest they've paid on your student loan.
You will likely be eligible to deduct all of the interest you pay on your home mortgage.
Tax law allows you to deduct things that are "necessary and ordinary" for running a business. Examples include office supplies, health insurance, and business related travel expenses.
Charitable organizations fall into two categories: public and private. What percentage of your charitable contributions you may deduct depends on what category the charity belongs to.
You may deduct 50 percent of your donations to public charities, but only 30 percent of those to private ones.
The Internal Revenue Service (IRS) has a list of all charitable organizations eligible for tax-deductible donations. Look in an IRS Publication 78 for details.
Just because an expenditure qualifies as a deduction doesn't mean that 100 percent of the money is deductable. In the case of health care, only what exceeds 7.5 percent of your AGI may be deducted.
The earned income tax credit only applies to incomes below $40,000.
Sometimes you find out about an available tax deduction after paying your taxes. You have the right to amend your taxes and claim those deduction by submitting an IRS 1040x form.
Some tax deductions do not require itemization, but are not standardized either. One example is the $1,000 child credit.
For purposes of a child tax credit the age of adulthood is 17.
An IRA allows you to save up for retirement while shielding some of your income from taxes. You may deduct up to $4,000 in annual contributions to your IRA.