What You Need to Know About Tax Deductions

What You Need to Know About Tax Deductions 

Tax deductions can help you save money— but only if you know what they are, how they work, and how to claim them. Here is a little guide to help you out. 
 

What is a tax deduction? 

Tax deductions lower your taxable income and in turn, reduce your tax liability. You can subtract the amount of a tax deduction from your income, lowering your taxable income. The lower your taxable income is, the lower your tax bill. 

How to claim a tax deduction? 

There are two ways to claim tax deductions: You can opt for a standard deduction OR you can itemize deductions. 

Standard Deductions: 

Basically, the standard deduction is a flat-dollar, unconditional reduction in your adjusted gross income. The amount you can qualify for depends on your filing status. 

• For those who are filing as single in the 2021 tax year, the standard deduction was $12,550 and has been adjusted to $12,950 for the 2022 tax year.
• For those who are married and filing jointly in the 2021 tax year, the standard deduction was $25,100 and has been raised to $25,900 for the 2022 tax year.
• For those who are married and filing separately in the 2021 tax year, the standard deduction was $12,550 and has been adjusted to $12,950 for the 2022 tax year.
• For those who are filing as a Head of Household in the 2021 tax year, the standard deduction was $18,800 and has been raised to $19,400 for the 2022 tax year.

Itemizing Deductions: 

By itemizing, you can cut your taxable income by taking any of the many available tax deductions you likely qualify for. The more you can deduct, the lower your tax bill. It may be difficult for you to get started with an Itemized deduction on your own, so contacting a tax professional can be helpful. Since the enactment of the Tax Cuts and Jobs Act, available itemized deductions have been substantially reduced. Medical expenses, state & local taxes – limited to $10,000, mortgage interest, and charitable donations are the available options to itemize. 

Itemized vs. Standard deductions: 

Here’s what the choice comes down to: 

• If your standard deduction comes out to be less than the sum of your itemized deductions, you should probably itemize and save money. Beware, however, that itemizing often takes more time, requires more forms and you’ll need to have proof that you’re entitled to the deductions. It will be helpful to get in touch with a tax expert to help you out.
• If your standard deduction is more than the sum of your itemized deductions, it might be better to take the standard deduction
• If you are married filing separately, both spouses must make the same selection.

A Helpful Deduction: Charitable Contributions 

As we find ourselves reaching the holidays, it is helpful to remember the deduction for charitable contributions. In 2021, U.S. taxpayers can deduct up to $300 in charitable donations made this year, even if you choose to take the standard deduction. This deduction doubles for legally married couples. You can deduct $600 in charitable donations in 2021, even if you take the standard deduction. However, keep in mind that December 31st is the deadline to make charitable donations for 2021. 

Talk to your tax expert about which option is best for you. CKH Group is happy to help, contact us to schedule a free consultation with one of our tax professionals today. 

The above article only intends to provide general financial information and is based on open-source facts, it is not designed to provide specific advice or recommendations for any individual. It does not give personalized tax, financial, or other business and professional advice. Before taking any form of action, you should consult a financial professional who understands your particular situation. CKH Group will not be held liable for any harm/errors/claims arising from the articles. Whilst every effort has been taken to ensure the accuracy of the contents we will not be held accountable for any changes that are beyond our control.