Tax season is here, and that means it's time to start looking at all the tax deductions you're eligible for. Whether you're looking to optimize your refund so you can go on vacation, consolidate credit card debt, pay off your debt completely, or some other reason, the more deductions you can take advantage of, the better. Here are a few of the most common deductions taxpayers should know about before filing their 2021 taxes.
Home mortgage interest
Homeowners can deduct interest on their home mortgage up to $750,000 in debt ($1,500,000 if married filing jointly) in 2021. This deduction is available regardless of whether or not you typically itemize deductions.
Medical expenses
Taxpayers can deduct medical expenses that exceed 7.5% of their adjusted gross income in 2021. This deduction is available regardless of whether or not the taxpayer itemizes their deductions. You can also deduct the mileage you incurred traveling to your medical appointment.
State and local taxes
Taxpayers can deduct state and local taxes (including sales and property taxes) up to $10,000 in 2021, regardless of whether or not you itemize your deductions.
Charitable contributions
Donating to a qualified charity can reduce your taxable income as well. You can deduct charitable contributions up to $100,000 per year in 2021. This deduction is available even if you don't itemize your deductions. To be eligible, your charity must be registered as a 501(c3) nonprofit organization with the IRS.
Education-related expenses
Many education-related expenses can be deducted from your taxes too. This includes tuition, fees, and other related costs for attending school. You may also be able to deduct books, supplies, and other educational expenses. The tuition and fees deduction allows you to deduct tuition and related educational costs up to $4,000 per year.
Casualty losses
The casualty loss deduction allows you to deduct the loss you suffered due to a natural disaster, such as a tornado, hurricane, or earthquake. The deduction must not exceed more than 10% of your adjusted gross income (AGI).
529 plans
You can use a 529 plan to help pay for college tuition, fees, and other educational expenses. You can contribute up to $10,000 per year to a 529 plan account, which is considered deductible even if you don't itemize your deductions.
Home improvement deductions
You can deduct the cost of any significant home improvement you make, including things like new roofing, siding, windows, and doors. The amount you can deduct varies depending on the type of improvement, and improvements that are considered "repairs" such as replacing window panes or painting are not eligible.
For your improvement expenses to be qualified, they must be considered "capital improvements," so you may want to run things by your accountant first before attempting to write them off your taxes.
Also, it may be better to hold off on deducting them for a later date if you're planning on selling to help reduce the amount of capital gains tax you'll pay on the sale.
The bottom line
By understanding these tax deductions, you can keep more of your hard-earned money in your pocket. Contact your accountant for more possible deductions you might be eligible for this year.
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Original Source: Credello: Common Tax Deductions You Should Know About for 2021
