Tax Deductions for Income Tax Returns
A tax deduction reduces your adjusted gross income or AGI and thus your taxable income on your tax return. As a result, this either increases your tax refund or reduces your taxes owed. It's not just about how much income you make, but how much of your share of your pie you get to keep!
When you prepare and e-file your taxes on eFile.com, the tax app will prompt you to enter applicable tax deductions and tax credits. This will assure that you don't overlook any qualified tax savings. Generally, you can save the most money on your taxes by maximizing nontaxable income, tax deductions, and credits. Tax credits are similar to tax deductions, but they reduce your tax bill dollar-for-dollar.
Key points:
- Tax deductions are qualified expenses which can be deducted or subtracted from your taxable income, thus lowering your taxes; they also may be referred to as tax write offs.
- Deductions change as the tax code is updated and some deduction limits are adjusted each tax year for inflation.
- Many deductions require Schedule A which means you have to itemize deductions in order to claim them; there are also above-the-line deductions which you can claim in addition to the standard deduction.
- Many popular itemized deductions include the SALT deduction, charitable contributions, mortgage points, and medical expenses.
- eFile will help you claim deductions and report them on your Schedule A, if itemizing your deductions is more beneficial than claiming the standard deduction. This way, you do not need to have extensive tax knowledge to save money on taxes.
Tax deductions can be complicated, so let eFile.com help you with your deductions if this information overwhelms you. We will determine which deductions (itemized or standard) are best and most tax advantageous for you based on your answers to a couple of easy tax questions. Then, we will calculate the deduction amount for you. It's that simple!
Income Tax Return Deductions
Compare tax deductions with tax credits in more detail below; the table shows the most popular tax deductions you may qualify to claim on your tax return. The credits and deductions on this page are for individuals, including self-employed individuals who use Schedule C with their Form 1040. The eFile platform will calculate these deductions and report them on the proper IRS forms for you based on your entries - start here.
You may be wondering:
These questions and more are addressed in the table below.
Deduction Expense Claim Period
Generally, eligible tax deduction expenses have to occur during the given tax year, January 1 - December 31, so you can claim them on your tax return. The exception to this can be retirement or health plan contributions which can be made during a time frame in the following calendar year of the given tax year, usually not beyond the
tax return due date. Check the specific deadlines of the plan(s).
Current, Past and Future
Standard DeductionsAn overview by tax year of IRS or
federal standard deductions. When you prepare and e-file your taxes, the eFile tax app will automatically apply them to your tax return based on your filing status and age. Use the eFile.com
RATEucator to find out what your taxable income brackets will be after the standard deductions have been applied.
These are deduction methods on how you apply deductions on your tax return form. The eFile.com tax app will determine which is most tax advantageous to you: whether to itemize or use the standard deduction on your return. Simply enter your tax data and get the results when you
prepare your return on eFile.com. This decision can be difficult to make as there are benefits to both depending on your personal tax situation - eFile helps you choose the most tax beneficial method for you.
Claim one or more dependents on your tax return by entering their information in your eFile account and the app will do the rest for you. You can determine whether a person is a qualifying dependent in the eyes of the IRS; we make it simple for you to find out via the eFile.com free
dependent tax tool. Simply answer a few questions on how a person relates to you and you will get the answer:
Start the DEPENDucator now.
If a person does not qualify as a dependent, they may be classified as a
qualifying relative. To find out, use this
free RELucator tax tool. Tip: Even though it says relative, the person does not have to be a relative of yours (a boyfriend, girlfriend, etc. may qualify).
Marriage, divorce, children, home purchase or sale, death, and job changes are all life changing events that can have implications on your tax return filing status and eligible tax deductions. If any of these or other
life changing events happened to you, click and check this list. When you prepare and eFile your taxes, you will be asked about these and other tax deductions; when you enter the information, the eFile.com app will do the math for you.
The mortgage interest deduction as reported to you on Form 1098, Line 1, can be claimed as a deductible expense on your tax return -
eFileIT.
Beginning in Tax Year 2018, the amounts of qualified residence debt or loan amounts changed. All you have to do is enter the interest amount from your 1098 during the tax interview on the eFile.com app and either
the itemized deduction or standard deduction method will be applied - whichever is most tax advantageous for you. As a mortgage or homeowner, you can also deduct points paid on the purchase of real property. Points are referred to as interest paid in advance or simply pre-paid interest made on a home loan to improve the rate on the mortgage offered by the lending institution. See
details on canceled mortgage debt that may apply.
You can deduct State and Local real estate and personal property Taxes (SALT), as well as either state and local income taxes or general sales taxes up to $10,000. The itemized method is required to claim SALT; however, it might not be in your best interest if the standard deduction amount exceeds that of the itemized amount. The eFile.com Tax App will work for you by applying the best deduction method for you - either standard or itemized deduction.
If you make contributions to a traditional Individual Retirement Account or IRA, these may be tax deductible. However, Roth IRA contributions are not tax deductible, but your account grows tax free. Traditional IRA contributions are often deducted from your paycheck - simply report your IRA contributions on your eFile account so any deductions can be assessed. If you are self-employed and make deductions to a SEP, SIMPLE, or other qualified retirement plan, these are generally deductible regardless of if you itemize and you can deduct all or most of your deductions if you are not covered by a workplace retirement plan. Additionally, you may be able to deduct an early withdrawal penalty on Schedule 1 to reduce your income.
Are you working from home as a
self-employed person or independent contractor with 1099 income? Find out which related home expenses you might be able to deduct. These expenses can also be claimed if you take the standard deduction - qualified business expense deductions are reported on Schedule C instead of Schedule A, done for you by the eFile App.
Long term care insurance premiums can be reported on your tax return and may qualify for a tax deduction. The long-term care expenses must be for medically necessary services, such as therapy or rehabilitation. Be sure to check with the insurance provider to learn about the particulars with your plan and report it on your return.
You can only deduct the amount of the total un-reimbursed allowable medical care expenses for the year that
exceed 7.5% of your
adjusted gross income. Let's say your AGI is $40,000 and your medical expenses are $5,000. You could claim $40,000 * 7.5% = $3,000, $2,000 of the $5,000 exceeds the 7.5%, so you can deduct $2,000. You can deduct medical expenses such as medications, dental treatments, eye doctor visits, and hospital fees and services.
Health Savings Accounts (HSAs) and Flexible Spending Accounts (FSAs) are Medical Savings Accounts that can be used as options to deduct medical expenses. A Health Reimbursement Arrangement (HRA) is an employer-sponsored plan to reimburse for medical expenses. This may also be for an Archer MSA. See
details on Medical Savings Accounts.
Find out which charitable contributions and donations you can claim on your tax return as a deduction. The easiest way to find out is
to start a free tax return on eFile.com as the app will guide you through this before you e-file your return. You can deduct charitable donations as an itemized deduction only.
Student or
education related tax deductions and
student tax credits have changed since the latest tax reform in 2018.
Education Savings Plans, or 529 Plans, can now be used for K-12 student education as well. The
Tuition and Fees Tax Deduction - not the same as deducting student loan interest paid - is an
expired deduction or tax law. The eFile.com Tax App will help you claim the student loan interest deduction. To claim the deduction on your 2020 or other previous year return, you will need to file a
tax amendment if you did not claim it. Many educational assistance programs are tax free if they meet certain requirements. This is often referred to as tuition reduction and you don't have to include a qualified tuition reduction in your income on your tax return.
A general overview of employee related job expense deductions, such as travel or meal expenses. For car mileage expenses, teacher or educator related expenses, see further below. For 2018 - 2025 Returns, unreimbursed employee expenses are no longer tax deductible.
Did you use your car for business, medical, or charitable purposes? If so, you may be able to deduct your vehicle use or mileage. Otherwise, you must be one of the following types of employees or workers:
- Qualified performing artist
- Fee-basis state or local government official
- Armed forces reservist
- Impairment-related work expenses
- Your employer entered code "L" for box 12 of your W-2.
See
car mileage rates by tax year.
As a teacher or educator, you can deduct certain job-related expenses, such as books, supplies, computer equipment, software, or essential services on your tax return. These can lower your tax and help you get back more of your hard-earned money as a tax refund. As a teacher or instructor, you do not have to itemize to claim this deduction.
Find out what type of work qualifies as
self-employment or independent contract work. As either, the tax return implications are different than those of a W-2 wage earner. You are responsible for self-employment taxes via Schedule SE - however, you can also deduct a percentage of your self-employment tax on Schedule 1 as an above-the-line deduction. You can
prepare and eFile your taxes with self employment or independent contractor income, with W-2 income, or both - the eFile application will help you report all your income and claim the proper deductions.
The Qualified Business Income deduction (or QBI deduction) allows you to deduct up to 20% of qualified business income for most self-employed taxpayers or small business owners - this can be used whether or not you
itemize your deductions.
For divorce decrees finalized
before January 1, 2019, alimony payments may be tax deductible for the payer. Deductible alimony can be reported on your tax return and included on Schedule 1 -
eFileIT. Simply include a few pieces of information regarding your payments on your eFile account and the Tax App will report it on the form for you. However, if your divorce was finalized in 2019 or after and you are filing taxes, you do not report your alimony on your return as it is no longer deductible for the payer.
Find out how to apply gambling losses on your tax return. Losses from gambling can be deducted as itemized deductions up to the amount of your winnings. For example, if you gamble throughout the year and win $1,500, but lose $2,000, you can deduct up to $1,500 of your losses.
You can deduct casualty and theft losses from a
federally declared disaster area as a job-related deduction or on income producing property (stocks, precious metals, works of art, etc.).
Interest you paid on money you borrowed for an investment property is generally deductible. This does not include interest from passive activities or securities that generate tax-exempt income.
All miscellaneous deductions subject to 2% of your AGI are
eliminated for Tax Years 2018 - 2025. You can manually file the information for
2017 and earlier tax returns, and potentially for 2026 and later tax returns.
The moving expense deduction was effectively suspended - due to the 2018 Tax Reform Act - starting with
Tax Year 2018 until the 2026 Tax Year. However, if you are on
active military duty, you can still deduct relocation expenses based on a military relocation order. Some
states - like Massachusetts - still have the moving expense deduction for everybody.
Tax Tip: If your employer asks you to move, you might want to ask for an expense reimbursement as
taxable income.
Jury duty pay is a form of
taxable income that must be reported on a tax return. There is a jury duty pay deduction for employed taxpayers who receive income from their employer during the period of jury duty. If you receive both payment from your job and jury duty pay, you may have to give your jury duty pay to your employer through an offset. On your taxes, report the jury duty pay as income, but can deduct it if you paid it in this way. The eFile Tax App will figure this for you when you enter this information.
There are no direct childcare expense deductions you can claim, however, you should explore if you are eligible for the
Child Care Tax Credit via the
CAREucator Tool. It's easy to use and gives you instant answers. Did you receive dependent care benefits from your employer during the year? If so, you may be able to exclude some or all of them from your income. For example, on Form 2441, Part III, the tax app will determine your child care tax credit amount -
eFileIT Form 2441.
While not a deduction, the Adoption Tax Credit is a tax credit designed to help with the expenses related to adopting a child under the age of 18 (including a child with special needs). When you start a tax return on eFile.com, include your adoption expenses and the credit will automatically be calculated and reported for you by the tax app and applied to your tax return. Thus, no complicated math or guessing is required by you.
Other Tax Items and Deductions
The more common tax deductions in the table above; below, find various tax items based on deductions and other ways to save money on taxes. While the eFile Tax App will help claim deductions and credits, use the information below to tax plan or to simply get a better understanding of your tax situation.
Make sure you don't miss any of these qualifying tax credits. Tax credits directly reduce your taxes due and may even be refundable to you in the form of a
tax refund.
Home repairs and contributions to political campaigns are only two examples of a wide range of expenses you cannot claim as a tax deduction on a tax return. However, this list is dynamic and can change from year to year. The eFile.com Tax App will not include nondeductible expenses when you prepare and eFile your taxes so you don't have to worry about whether or not you are claiming only valid deductions.
Recent and ongoing tax reforms extend or let tax breaks expire; see how this year is affected.
Not only know the latest tax deduction changes, but also have on overall tax return plan in place. For example, use the
eFile.com Taxometer to calculate your tax withholding based on your tax return goals. In other words, taxercise your paycheck!
Use the eFile.com free W-4 TAXometer.
The following are other, less common tax deductions and/or adjustments to income that the eFile Tax App will calculate and report on Schedule 1, Part 2:
- Expenses for income from personal property rental
- Nontaxable amount of the value of Olympic/Paralympic medals or USOC prize money
- Reforestation amortization and expenses
- Repayment of supplemental unemployment benefits under the Trade Act of 1974
- Contributions to Section 501(c)(18)(D) pension plans or certain chaplains to Section 403(b) plans
- Attorney fees, court costs paid in connection with an IRA award for information provided to detect tax law violators or those involving certain unlawful discrimination claims
- Housing deduction from Form 2555 - see foreign earned income
- Excess deductions for Section 677(e) expenses on Schedule K-1 (Form 1041).
When preparing your taxes on eFile.com, many of these deductions will be reported on Schedule 1. This is added to your Form 1040 and sent to the IRS - eFileIT.
What About Business Deductions?
In general, business expenses are deductible based on the following:
- The asset or expense was paid for by you as the business owner and you were not reimbursed for it.
- The expense directly relates to your business and earning income for it.
- You have receipts or records of your purchases to be reported accurately on your return.
Deductible business expenses can reduce your self-employment taxes which can be combined with the Qualified Business Income Deduction or QBI Deduction. When you file your return on eFile.com, the tax app will report your self-employment deductions and total income on Schedule C, Schedule SE, Schedule 1, and Form 1040 - eFileIT on eFile.com.
How to Claim Tax Deductions
As shown above, there are many types of deductions for various scenarios, including deducting business expenses and paying into deductible savings or retirement accounts. To claim these deductions, you will need a specific IRS Schedule or two depending on the expense; eFile.com will handle this for you as you enter information. Most of the qualified expenses above relate to property, health, and savings, but business expenses are reported differently.
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