Deductions to Consider When Doing Taxes
Tax deductions reduce a taxpayer's final tax obligation by excluding certain qualified expenses from taxable income, so that person's income tax rate will be applied against a lower amount. Tax filers should review the tax deductions below for applicability to fully recognize all legal deductions and maximize their tax savings.
Qualified post-secondary tuition payments and related expenses of up to $4,000 may be deducted if the taxpayer is not a dependent. Interest payments on student loans may also be deducted for single filers reporting a modified adjusted gross income of $75,000 or less, or for married filing jointly returns reporting a modified adjusted gross income of $150,000 or less .
Self-employed tax filers may deduct ordinary and necessary business expenses from their tax returns. If the business holds inventory, taxpayers may deduct expenses for producing, obtaining, storing and transporting the goods prior to their sale. Employee compensation, health insurance, rent expenses, interest on business loans, business insurance premiums and local, state or foreign taxes may also be deducted. The portion of a personal asset, such as a home office, personal automobile or computer equipment, that is used for business purposes is also a deductible expense.
Homeowners may deduct their interest paid on up to $1,000,000 of a mortgage on their principal or second home, as long as the loan is used to acquire, build or substantially improve a residence. Homeowners may also deduct interest on up to $100,000 on home equity loans used for any purpose. Additionally, state, local or foreign real estate taxes are deductible on federal income tax returns, as long as the tax is assessed on the value of the property and is not a flat fee.
Qualified medical and dental expenses are deductible to the extent they exceed 7.5 percent of the taxpayer's adjusted gross income, as of 2011. Qualified health expenses include insurance premiums for health and long-term care insurance, medically necessary dental and vision treatments and prescribed medications. Expenses should be deducted in the year of their payment, regardless of when the service was actually provided.
Brittany Bradford has been writing professionally since 2007, specializing in personal finance and interior design. She also works full-time as a financial planner. Bradford graduated with honors from Texas Christian University in Fort Worth, Texas, with a bachelor's degree in finance.