When it comes to your income taxes, it can be difficult to stay up to date on all of the new rules. In the past five years alone, there have been multiple tax laws passed, such as the Tax Cuts and Jobs Act, the Setting Every Community Up for Retirement Enhancement Act, the Coronavirus Aid, Relief, and Economic Security Act, and the American Rescue Plan Act
Each year, the IRS also adjusts threshold amounts and income limits for various tax credits and deductions. Unless you are a tax professional, it’s common to feel lost during tax time.
Here are common write offs that you can deduct on your taxes:
For those that have incurred significant medical expenses, you may be able to write them off on your taxes. To qualify, the medical expenses must be considered qualified and not reimbursed by insurance.
For this deduction, you can deduct the amount of medical expenses that exceed 7.5% of your AGI (Adjusted Gross Income). To give you an example, if your AGI is $100,000 and your medical expenses were $10,000, you would only be able to deduct $2,500.
$10,000 – ($100,000 X 7.5%) = $2,500
For homeowners, you may be eligible to deduct a portion of the mortgage interest you paid during the year. For mortgages created before 2018, interest is deductible up to the first $1 Million of loans. For mortgages created in 2018 or after, interest is deductible up to the first $750,000 of loans.
Mortgage companies and banks will be mailing taxpayers a Form 1098, which will list the mortgage interest paid during the year. Depending on the loan amount, you may be able to deduct the full amount paid.
For HELOCs (Home Equity Lines of Credit), you may be able to deduct the interest if the loan was used to buy, build, or substantially improve your home.
Another potential write-off is taxes that you have paid during the year. These taxes include real estate property taxes, personal property taxes, and state or local taxes. Due to current tax laws, this deduction is capped at $10,000 whether you file as single or married.
For real estate property taxes, they are deductible in the year they were paid. These are typically made in two separate installments. If you pay your property tax payments through your mortgage, then these will be paid for you by the mortgage company.
For personal property taxes, you can typically deduct a portion of the registration fees paid for your cars, motorcycles, and boats.
For state and local taxes, you can deduct either your state income taxes or local general sales tax. Your state income taxes include taxes withheld through payroll or estimated taxes paid during the year. If you elect to deduct local general sales taxes, you can use either your actual expenses or the optional sales tax tables.
The most popular kind of tax deduction has to be donations to charities. Whether you are writing a check or making a donation online with your credit card, these contributions are considered cash contributions. The limit that can be deducted in one year is 60% of your AGI. However, due to Coronavirus, the limit for 2021 is 100% of your AGI.
If you are donating physical property or stock, the limit that can be deducted is either 50%, 30%, or 20% of your AGI, and is based on the type of organization you donate to. For any contribution of $250 or more, you must obtain and keep a contemporaneous written acknowledgment (letter or receipt) from the qualified organization indicating the amount, description, and estimate of the value of those items donated.
Understanding what expenses are eligible to be written off on your taxes is essential to reducing your tax bill or increasing your refund. If you would like to work with a financial planner to walk you through your options, I would love to help you!
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Disclaimer: This blog is for informational purposes only, and should not be considered advice or recommendations. All opinions expressed herein are solely those of Amaral Financial Planning, LLC, unless otherwise specifically cited. Material presented is believed to be from reliable sources and no representations are made to another parties’ informational accuracy or completeness. You should consult your financial advisor, tax professional or legal counsel prior to implementation.