Ways to Help Get Tax Breaks

in Tax Information


The American tax code is extremely complicated, and though this means that it can be a pain to file your annual return, it also means that there are a lot of ways to either increase the amount of your refund or decrease the amount of your tax liability. Despite this, most people are aware of at least some of the basic deductions and credits they can claim, such as dependents and certain tax credits like the Earned Income Tax Credit (EITC). Nevertheless, there are a number of deductions that can save a lot of money that some people may overlook, some of which do not involve itemizing your deductions.

If there is a deduction that can be claimed that does not require one to itemize, they are technically known as adjustments to your income. The amount after these adjustments is known as your adjusted gross income (AGI), which plays a big role in determining what can or cannot be claimed. Adjustments like dependents are well known, but there are some other adjustments that are frequently overlooked. One example of this is contributions to a retirement plan like an IRA, 401(k), or similar plan. Another adjustment that is commonly overlooked is interest on student loans, up to a limit of $2,500 as long as the loan qualifies. There are other adjustments as well, such as capital losses and some business expenses.

The real catch behind many deductions is that in order to claim them, you have to file the “long form” 1040 and itemize all of your deductions on Schedule A. This can be a time consuming and annoying process for many people, so they just opt not to itemize their deductions. Nevertheless, itemization can really make an enormous difference in the amount of money owed, either an IRS refund back to you or as a liability owed by you to the IRS. Either way, itemizing is frequently well worth the additional time and hassle involved, especially if you hire a tax professional to do the hard work on your behalf.

Even when people decide it is worth the effort to itemize their deductions, there are many deductions that are commonly overlooked. Some of the most common deductions over looked include: interest paid on a home mortgage, interest paid on a home equity loan (or second mortgage), state and local taxes or sales taxes, medical expenses, and personal casualty or theft losses (including amounts lost through financial schemes and scams). As is usually the case with anything done by the IRS, there are many restrictions and strict guidelines that have to be followed in order to claim these deduction legally, so if you are not using professional services, you should take the time to carefully read IRS Publication 17, which describes most of these matters in good details and tells taxpayers where to look for more detailed information.

There are many tax breaks – adjustments, deductions, and credits – that can be claimed, so there are many potential tax breaks to be found. The real issue is determining which ones you qualify for and being careful to claim them correctly. Remember that you are liable for any mistakes on your return, so it is in your best interest to pay close attention to what you claim.

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