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What are itemizing deductions on tax returns?
Itemized deductions are an alternative to the standard deduction - a reduction of your taxable income based on allowances for certain expenses. You may be required to use itemized deductions in some cases - e.g., you are married, filing separately and your spouse itemizes.The most common items that make itemized deductions higher than the standard are: mortgage interest on your primary residence, state and local income taxes, generous charitable deductions, and high unreimbursed medical expenses.A longer, but not complete list:Medical and Dental Expenses (Limited to amount that exceeds 10% of your AGI) Caution: Do NOT include expenses reimbursed or paid by others.Medical and dental expenses (doctor, dentist, lab work, Rx, nursing, hospital and surgical, long term care, some support and treatment programs, medical aids • there is a more complete list in the instructions)Medical, dental, long-term care insurance premiums NOT paid with pre-tax money (there are limits for LTC premiums based on age) including Medicare Part B and D but NOT life insurance premiumsGenerally NOT over-the-counter medications, such as vitaminsTaxes You PaidState and local Income taxes, or General sales taxes (but NOT federal income taxes, social security or Medicare taxes, estate or gift taxes)Real estate taxes (but NOT for real estate used for business)Personal property taxesInterest You Paid Note: Your mortgage interest deduction may be limitedHome mortgage interest and pointsMortgage insurance premiumsInvestment interest (interest on funds borrowed to purchase property held for investment.Gifts to CharityGifts by cash or check.  This includes travel and other out-of-pocket expenses for volunteer workOther than by cash or check.  Donated items, stock, property etc.Casualty and Theft LossesJob Expenses and Certain Miscellaneous Deductions (Limited to amount that exceeds 2% of your AGI)Unreimbursed employee expenses—job travel, union dues, job education, etc.Tax preparation feesOther expenses—investment, safe deposit box, etc. List type and amount
What are some tax write offs the average person doesn’t take advantage of?
There are many deductions which may help to lower your tax, I’ve listed several that you may qualify for depending on your own situation. I’ve also provided links where you can find additional information. I hope you find this helpful.What Is a Tax Credit?Subtract tax credits from the amount of tax you owe. There are two types of tax credits:A nonrefundable tax credit means you get a refund only up to the amount you owe.A refundable tax credit means you get a refund, even if it's more than what you owe.What Is a Tax Deduction?Subtract tax deductions from your income before you figure the amount of tax you owe.Business TaxpayersFind credits and deductions for businessesCredits for IndividualsFamily and Dependent CreditsIncome and Savings CreditsHomeowner CreditsHealth Care CreditsEducation CreditsDeductions for IndividualsWork Related DeductionsItemized DeductionsEducation DeductionsHealth Care DeductionsInvestment Related DeductionsRE: Deductions for IndividualsTaxpayers may deduct contributions made to retirement plans. But, you need to understand the difference between two retirement plan categories.A Simplified Employee Pension (SEP) plan is for self-employed people.An Individual Retirement Account (IRA) is available to both employees and self-employed workers.When you contribute after-tax dollars into these plans, your contribution is tax deductible.Student Loan Interest: in the 2022 tax year, if you’re not “married filing separately,” you can deduct up to $2,500 in interest on qualified student loans.Educator Expenses: Many educators pay for school supplies and equipment out of their own pockets.For tax year 2022. you can deduct up to $250 of the qualified expenses that you paid during the year. If your expenses are more than $250, you may be able to deduct the higher amount as an unreimbursed employee expense on Form 1040, Schedule A.To be eligible for this deduction, you must be a K-12 teacher, counselor, principal, or aide. You also must work at least 900 hours during a school year.Qualified expenses include:Professional development course feesBooksSuppliesComputer hardware or softwareItemized Deductions: Page 2 of Form 1040 asks you to take the standard deduction or to compute your itemized deductions.The standard deduction for 2022 is $12,000 for individuals and $24,000 for married couples filing jointly.Always use Schedule A and calculate your total itemized deductions. Take the higher amount if itemized deductions are greater than the standard deduction.Here are some itemized deductions that you should take:Casualty and Theft LossesCasualty and theft losses are losses due to:TheftVandalismFiresStormsCar accidentsAs of 2022. you can deduct the dollar amount of the loss over $100. If you have more than one loss, you deduct $100 from the dollar amount of each loss to calculate the tax deduction. You also subtract any funds received from an insurance policy claim.Charitable Contributions: This deduction may be the most difficult to track if you make dozens of small donations throughout the year. Keep a log of the donations you make in cash, and document the checks that you write to a charity.If you donate clothing or other items, ask the charity to give you a written receipt.Donations above a certain dollar amount require a letter from the charity for tax documentation purposes, and the dollar amount changes frequently.Home Mortgage Interest: The tax deductibility of home mortgage interest can have a huge impact on your tax bill.The IRS allows you to deduct interest on mortgage loans used to buy, build, or improve your home.To deduct the interest, mortgages taken out before December 15, 2022 cannot exceed $1 million for married couples filing jointly or $500,000 for married taxpayers filing separately.Our friends at TurboTax have written a great F.A.Q about deducting home mortgage interest that is well worth the read.Medical and Dental Expenses: If the total amount of your medical and dental expenses exceeds 7.5% of your AGI, you may deduct them on your Schedule A .If your total expenses are below the 7.5% floor, they are not deductible at all.Keeping track of this deduction during the tax year can be challenging. If you have a large medical bill in a given year, you’re likely distracted.This deduction is a good reason to find a CPA to help you with your tax return. A tax professional can ask the right questions to help you maximize your deductions.State and Local Taxes: This tax deduction is particularly important if you live in a state with a high state tax rate.You can deduct state and local income taxes on Schedule A of your federal return. But federal contributions such as Social Security, Medicare, or Federal Unemployment are ineligible.401(k) Matching Contributions: This isn’t a deduction but rather a tax strategy that’ll have a long-term impact on your retirement.Many employer-sponsored retirement plans offer an employer matching contribution to your 401(k). If your employer offers a matching contribution, take full advantage of the benefit.Here’s an example. Assume that your company offers a 3% match on 401(k) retirement plan contributions. You decide to contribute 3% of your annual salary, or $1,800. These are pre-tax dollars, meaning that 100% of the $1,800 you earn is invested.Since you contributed 3%, your employer invests another $1,800. You now have $3,600 invested, and you don’t pay taxes on the earnings until you start to withdraw funds in retirement.It may be the most valuable tax strategy available to you.Keep Detailed Records: Preparing to file your taxes can be time-consuming, but getting the most out of your available tax deductions will save you money. Use these tips and keep detailed records during the tax year. Consider working with an experienced tax preparer who can help you file your taxes accurately.RE:10 Tax Deductions You Should Take In 2022 - QuickBooks20 popular tax deductions and tax credits for individualsThere are hundreds of deductions and credits out there. Here’s a drop-down list of some common ones, as well as links to other content that will help you learn more.Student loan interest deductionAmerican Opportunity Tax CreditLifetime Learning CreditChild and dependent care tax creditChild tax creditAdoption creditEarned Income Tax CreditCharitable donations deductionMedical expenses deductionDeduction for state and local taxesMortgage interest deductionGambling loss deductionIRA contributions deduction401(k) contributions deductionSaver’s CreditHealth Savings Account contributions deductionSelf-employment expenses deductionHome office deductionEducator expenses deductionResidential energy creditRE:Tax Deductions Guide and 20 Popular Breaks for 2022 - NerdWallet1. Charitable Donations: Donations to a qualified charitable organization are deductible (qualified organizations should be able to give you proof of status). Make sure that you can supply all necessary receipts or acknowledgement letters to the IRS. If you receive any goods or services in exchange, subtract the value of the goods and services from the contribution amount.For tax year 2022. you may deduct donations worth up to 50% of your income. Starting next year, this cap will be raised to 60% per the TCJA. The new law eliminates your ability to deduct donations made to a college in exchange for the right to buy athletic tickets.2. Medical and Dental Expenses: You can deduct the amount of your unreimbursed medical and dental expenses that exceeds 7.5% of your Adjusted Gross Income (AGI). For example, if your AGI is $50,000, you may deduct the portion of your medical expenses over $3,750. Under the TCJA, this threshold will increase to 10% of your AGI in tax year 2019.3. Performing Artist Expenses: Are you the stereotypical starving artist? Certain unreimbursed business expenses of performing artists, as well as reservists and fee-basis government officials, are handled separately from other deductible business expenses. See the instructions for Form 2106, "Employee Business Expenses," for details. This tax season is the last time you will be able to claim this deduction, as it has been eliminated completely under the TCJA.4. Tax Preparation Fees: Generally, you can deduct fees that you pay for tax preparation in that year. This means that on your 2022 return, you can deduct the fees incurred in 2022 for preparing your 2022 return. Fees for tax preparation software, tax publications, and electronic filing fees are all included, but the TCJA has also eliminated this deduction starting in tax year 2018.5. Mortgage Interest, Points, and Insurance: The mortgage interest that you pay on your home, as well as a portion of the points you paid to reduce your interest rate, may be deductible if you meet the criteria listed in IRS Publication 936, "Home Interest Mortgage Deduction." This applies to mortgage debt of up to $1 million for home loans taken before December 15, 2022. and mortgages of up to $750,000 taken after that date. Mortgage insurance premiums also qualify under the mortgage interest deduction through tax year 2022. but they are subject to phase-out beginning at $100,000 AGI (for married filing jointly status).6. Home Equity Loans: Interest on home equity debt of up to $100,000 may be deducted in 2022. For next year, experts say interest on HELOCs should still be deductible provided that homeowners use the proceeds of the loan to make home improvements, and the first mortgage balance plus the HELOC does not exceed $750,000.7. Gambling Losses: Was it a bad year for you at the racetrack but a good year with lottery tickets? Believe it or not, you can deduct gambling losses with sufficient documentation • but only to the extent that you offset other gambling winnings.8. Real Estate and Personal Property Taxes: Generally, taxes that are levied through home ownership, such as real estate taxes are deductible.9. State/Local Taxes: You can deduct your state and local taxes paid in the previous year, or you can deduct the sales taxes that you paid (preferable for states that levy no state income tax). If you choose to deduct sales taxes, consult the 2022 Schedule A instructions to get a baseline value and then add the tax on big-ticket items that were purchased during 2017.Despite attempts to eliminate this deduction, the TCJA keeps it in place, but limits the total deductible amount of income, sales, and property taxes to $10,000, beginning in tax year 2018.10. Job-Hunting Expenses: If you are looking for a new job within your present occupation and meet other criteria in IRS Publication 529, "Miscellaneous Deductions," you may deduct certain job-hunting expenses such as fees to employment agencies, even if you don't get a new job. Good luck with the job hunt, because thanks to the TCJA, you won't be able to deduct these expenses going forward.NOTE: The following deductions have even greater value, as they are "above the line" deductions. These deductions are subtracted off your AGI directly and are available to you whether or not you itemize.11. Moving Expenses: If you succeeded in the above job hunt and must move because your new job is at least fifty more miles away from your current home, you can deduct some moving expenses. See Publication 521, "Moving Expenses," for details. The TCJA eliminates this deduction for the 2018-2022 tax years.12. Retirement Plan Contributions: Contributions to tax-deferred retirement accounts may be deductible. Roth IRAs are not since they are funded with post-tax dollars. This deduction has been kept in place by the TCJA.13. Alimony: Amounts that you pay to a former spouse, excluding child support payments, may be deductible. See Tax Topic 452 for details. The alimony deduction remains in effect through 2022. but disappears for couples divorced in 2022 or after.14. Health Savings Account Deductions: Your 2022 contributions to your Health Savings Account (HSA) are deductible, although employer contributions are not. To qualify, you must be covered by a high deductible health plan (HDHP) and have no other health coverage, except certain permitted coverage.15. Self-Employment Expenses: As a self-employed person, you pay both the employer and employee component of payroll taxes. Fortunately, you get to deduct the 50% considered the employer portion. In some cases, you can also deduct retirement fund and health insurance expenses.16. Home Office Deduction: You may be able to deduct some expenses for the business use of your home if there is a part of it that you use regularly and exclusively for work. To qualify, your home should also be your principal place of business, so even daycare providers may take this deduction. Refer to IRS Publication 587, "Business Use of Your Home" for details on how to calculate your deduction.17. Educator Expenses: K-12 educators can deduct up to $250 in qualified and unreimbursed educational expenses. These can be items used in the classroom or payments for professional development courses taken within your field. The TCJA has not made any changes to this deduction.18. Educational Deductions: You may be able to claim a deduction on student loan interest paid • but first see if you qualify for educational tax credits such as the American Opportunity Tax Credit and the Lifetime Learning Credit. Tax credits subtract directly and fully from your tax bill, compared to deductions that reduce your tax bill proportionally to your tax rate.RE:18 Top Tax Deductions For 2018
Can I get tax benefit on education loan repayment to a relative?
Your question is an interesting one. You cannot deduct unclaimed student loan interest from previous years in 2022. You can, however, claim interest deduction in 2022 and for each year going forward. To do this you need to meet certain requirements. I would need more facts to know if you’ve met the requirements for certain but, based on some assumptions, I’ve prepared some interesting experts from the IRS’s website. You can read the full article here.*************************************************************************************Deducting Student Loan InterestGenerally, personal interest you pay, other than certain mortgage interest, isn't deductible on your tax return. However, if your modified adjusted gross income (MAGI) is less than $80,000 ($160,000 if filing a joint return) there is a special deduction allowed for paying interest on a qualified student loan (also known as an education loan) used for higher education.For most taxpayers, MAGI is the adjusted gross income as figured on your federal income tax return before subtracting any deduction for student loan interest. This deduction can reduce the amount of your income subject to tax by up to $2,500.Your ability to deduct interest from your MAGI depends on a few assumptions:Your loan is a qualified student loanYou can manage the claim the deduction of previous years interest in the current year.Let’s go through these two conditions step-by-step.Qualified Student LoanThis is a loan you took out solely to pay qualified education expenses (defined later) that were:For you, your spouse, or a person who was your dependent when you took out the loan;Paid or incurred within a reasonable period of time before or after you took out the loan; andFor education provided during an academic period for an eligible student.Loans from the following sources aren't qualified student loans.A related person.A qualified employer plan.Related person. You can't deduct interest on a loan you get from a related person. Related persons include:Your spouse;Your brothers and sisters;Your half brothers and half sisters;Your ancestors (parents, grandparents, etc.);Your lineal descendants (children, grandchildren, etc.); andCertain corporations, partnerships, trusts, and exempt organizations.Qualified Education ExpensesFor purposes of the student loan interest deduction, these expenses are the total costs of attending an eligible educational institution, including graduate school. They include amounts paid for the following items.Tuition and fees.Room and board.Books, supplies, and equipment.Other necessary expenses (such as transportation).The cost of room and board qualifies only to the extent that it isn't more than:The allowance for room and board, as determined by the eligible educational institution, that was included in the cost of attendance (for federal financial aid purposes) for a particular academic period and living arrangement of the student; orIf greater, the actual amount charged if the student is residing in housing owned or operated by the eligible educational institution.Eligible educational institution An eligible educational institution is any college, university, vocational school, or other postsecondary educational institution eligible to participate in a student aid program administered by the U.S. Department of Education. It includes virtually all accredited public, nonprofit, and proprietary (privately owned profit-making) postsecondary institutions.Reasonable period of time. Qualified education expenses are treated as paid or incurred within a reasonable period of time before or after you take out the loan if they are paid with the proceeds of student loans that are part of a federal postsecondary education loan program.Even if not paid with the proceeds of that type of loan, the expenses are treated as paid or incurred within a reasonable period of time if both of the following requirements are met.The expenses relate to a specific academic period.The loan proceeds are disbursed within a period that begins 90 days before the start of that academic period and ends 90 days after the end of that academic period.If neither of the above situations applies, the reasonable period of time usually is determined based on all the relevant facts and circumstances.*************************************************************************************If you meet all of the above requirements, which I assume you do, you’ve met the first condition. Now let’s answer the second question.“You can manage the claim the deduction of previous years interest in the current year?”Previous Years Strictly speaking you cannot go use interest paid during 2022 and 2022 to justify a 2106 MAGI adjustment simply because you failed to take the deductions previously. You can, however, take your deduction for 2022 forward. If you really want to benefit from the 2022 and 2022 deductions that you missed, you’ll have to refile your tax returns for those years. I suspect that would be more trouble than it’s worth.Bear in mind, if you are able to claim this deduction, you won’t save $2,500 you will only save a maximum of the taxes owed on $2,500. This amount will be based the interest payments you’ve made to your relative, not any principal payments you’ve made.IRS Form 1098-EIf you're currently paying off a student loan, you may get form 1098-E in the mail from each of your lenders. Your lenders have to report how much interest you pay annually. Student loan interest can be deductible on federal tax returns, but receiving a 1098-E doesn't always mean you're eligible to take the deduction.Your lenders are required to send you Form 1098-E only if you paid at least $600 in interest during the year. If you have several student loans with the same lender, the financial institution applies the $600 threshold amount to the total interest paid on all of your loans; you may get a separate Form 1098-E for each loan, though.Given that your family member originated your loan I doubt you received a form 1098-E from them. Strictly speaking, you can claim on your 2022 tax return that you paid interest without receiving this form from your relative but it would be better if you did. Starting this year, if your loan is a qualified loan, you should ask your relative to prepare a 1098-E for you each year going forward, including one for 2016.Paying Off Your Student Loans EarlyIf you have a student loan or a mortgage, please take a look at my company, Monger.com. We have an awesome program designed to help you pay off your loan years ahead of schedule. Reach out to me personally and let me know you’re interested and I will waive all fees so you can enjoy our services free of charge.
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