Mastering Tax Deductions: Your Comprehensive Guide to Maximizing Savings

Mar 25, 2024 | News

Tax deductions are a lawful way to lower the amount of your income that the government can tax, ultimately saving you money.

Optimizing your tax deductions might seem complicated, but it’s all about using innovative strategies to maximize your savings while following the rules.

This guide will unravel simple methods to increase your tax deductions. From identifying eligible expenses to making sound financial decisions, we’re here to guide you confidently through tax season.

1. Keep thorough records

The first step to maximizing your tax deductions is to keep records of your expenses throughout the year.

This means holding onto receipts, invoices, and other documents related to deductible expenses.

These records will serve as evidence to support your deductions when filling out your taxes and offer protection in the event of a tax audit.

2. Consider itemized deductions

It’s important to keep in mind that only certain expenses can be classified as itemized deductions, including:

● Medical and dental expenses

● Deductible taxes

● Home mortgage points

● Interest expenses

● Charitable contributions

● Casualty, disaster, and theft losses

Specific categories of expenses require you to spend a certain amount before you can list them separately. For instance, medical and dental costs are only deductible if they add up to more than 7.5% of your adjusted gross income (AGI).

Since 2018, you can’t deduct miscellaneous and work-related costs on your federal taxes, even if your employer didn’t pay you back for them.

3. Take advantage of tax-advantaged accounts

Contributing to tax-advantaged accounts like 401(k)s, Individual Retirement Accounts (IRAs), or Health Savings Accounts (HSAs) can help reduce your taxable income.

These accounts have perks like letting your money grow without being taxed and letting you take out money tax-free for certain expenses. By adding as much as you can to these accounts, you save up for retirement or medical costs and pay less in taxes.

4. Claim eligible credits

Using tax credits can directly lower how much you owe in taxes, dollar for dollar.

They’re a helpful way to reduce what you pay.

Some examples of tax credits are:

● Earned Income Tax Credit (EITC) for lower-income working families

● Child Tax Credit for families with qualifying children

● Child and Dependent Care Credit to reimburse working parents for child care costs

● American Opportunity Credit and Lifetime Learning Credit to help cover the cost of college

● Homeowner credits for energy-efficient improvements like solar panels and wind turbines

Make sure you qualify for and claim all eligible credits to get the most savings. If your credits add up to more than what you owe in taxes, you might get a refund.

5. Stay informed about tax law changes

Tax laws can change, which might affect what deductions and credits you’re eligible for. Stay informed about any updates to ensure you’re taking advantage of all the ways to save on taxes within the scope of the law.

You can do this by reading IRS publications, staying updated on tax news, or chatting with a tax professional.

6. Consult a tax professional

Understanding the ins and outs of the tax code can be tough, especially when it comes to getting the most out of deductions and credits.

That’s why it’s a good idea to get help from a tax professional or accountant. They can give you personalized advice based on your financial situation, help you figure out if you qualify for any extra deductions or credits, and make sure you’re following all the tax rules.

With their help, you can make sure you’re saving as much money as possible on your taxes.

The bottom line

Optimizing tax deductions is a smart way to reduce taxable income and save money.

You can maximize your tax savings by keeping thorough records of your expenses, considering itemized deductions, and taking advantage of tax-advantaged accounts.

Plus, don’t forget to claim eligible tax credits and stay informed about changes in tax laws. If you find navigating tax rules overwhelming, consider consulting a tax professional who can provide personalized guidance and help you make the most of your tax situation.

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Whether you’re keeping records, considering itemized deductions, or exploring tax-advantaged accounts, we’re here to help you make the most of your finances.

Contact us today to learn how we can support your financial goals.