If the total of your itemized deductions is more than the standard deduction, you may save more money on taxes by itemizing your expenses on your tax return. Then work out your total deductions by itemizing - or listing out - your mortgage interest, property taxes, state income or sales tax, charitable contributions, medical expenses and other eligible expenses. The IRS provides an online tool that walks you through determining your standard deductions. Start by understanding the amount of your standard deductions you’re eligible for. The IRS advises itemizing your deductions if the amount you’re eligible to deduct based on your actual expenses totals more than the standard deductions. Should I itemize or take the standard deduction? The difference comes down to whether you’re better off taking the standard fixed amount available to you as a deduction or listing out in detail what you actually spent on eligible deductible expenses. US taxpayers have the choice between taking standard deductions or itemizing deductions on their 2022 tax return. For example, if you owe $500 but your tax credit is worth $1,000, you don’t receive a refund for the extra $500. Nonrefundable tax credits reduce your tax bill by the amount owed, providing no refund if your bill is reduced to $0. Refundable credits provide you with cash back if the credit reduces your tax bill to $0 and there’s still money left over. There are two major types of tax credits: refundable and nonrefundable. Healthcare credits - or the Premium Tax Credit.Electric vehicle credits - reductions under the Inflation Reduction Act of 2022.Homeowner credits - taxes and residential energy costs for homeowners.Income and savings credits - including the Saver’s Credit, Foreign Tax Credit or credits for the prior year’s minimum tax.Family or dependent credits - including the Child Tax Credit, Child and Dependent Care Credit and Earned Income Credit.A credit can also increase your tax refund, whether you owe taxes or not.įor example, if you’re eligible for a tax credit of $500 for child care expenses, then your tax bill will be reduced by exactly $500. Investment-related deductions - including IRAs, capital losses and forgiven debt due to foreclosures.Ī tax credit is like a payment toward the taxes you owe, reducing your tax bill dollar for dollar.Healthcare deductions - medical expenses, dental expenses and health savings accounts (or HSAs).Education deductions - student loan interest, work-related educational expenses or teacher educational expenses.Itemized deductions - including property taxes, charitable contributions or mortgage interest. ![]() ![]() ![]() Work-related deductions - more commonly called business expenses.When you hear the term “tax write-off,” it typically refers to a tax deduction.Įligible taxpayers filing for the 2022 tax year may be eligible for: The IRS describes a tax deduction as a deduction that lowers the amount of your income before you calculate the tax you owe. What is a tax deduction?Ī tax deduction is an amount that you can deduct or subtract from your taxable income. Talk with a tax professional or choose tax software to maximize the eligible deductions you qualify for - and to lower what you owe for the 2022 tax year due Tuesday, April 18, 2023. Each directly reduces the amount of taxes you owe, though in different ways. All international money transfer servicesĪ tax deduction or tax credit can help you keep more of your money in your own pocket come tax time.
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