Do you want to get the biggest tax refund possible? If so, then you need to maximize your tax deductions. Many people don’t realize that they can claim a wide variety of deductions on their taxes. This can result in a bigger refund check at the end of the year. In this article, we will discuss what tax deductions are and how they impact your refund. We will also provide a list of tax deductions that you may be able to claim on your tax return.
What Are Tax Deductions and How Do They Work?
As of March 25, 2022 — the last reported data — the average tax refund for the 2022 filing season was $3,263, a 12% increase from last year. Why is it so much higher? A combination of tax credits and tax deductions.
While tax credits reduce the amount of taxes you owe, tax deductions lower your taxable income. There are two ways to claim tax deductions:
- Claim the Standard Deduction: The most common approach is claiming the standard deduction. The standard deduction is a deduction any taxpayer can claim without needing to itemize. The standard deduction for single taxpayers is $12,550 for the 2021 tax year or $25,100 for couples that are married filing jointly.
- Itemize Your Deductions: If you have extenuating circumstances, itemizing your deductions can make sense. To be worthwhile, the total of your deductions must exceed the amount of the standard deduction.
A List of Tax Deductions: 5 Common and Valuable Deductions to Claim in 2022
It pays to know about tax deductions, even if you claim the standard deduction. There are some tax deductions that are “above the line,” meaning you can claim them even if you don’t itemize your deductions. The above-the-line deductions can be used along with the standard deduction to lower your taxable income.
Here is a list of the most common and valuable above-the-line tax deductions:
1. Student Loan Interest Tax Deduction
If you made payments toward your student loans in 2021, you might be wondering, “Are student loan payments tax deductible?” The answer is yes; you can deduct up to $2,500 or the amount of actual interest paid, whichever is less. Payments made to either private or federal student loans qualify for the deduction.
2. Charitable Donations Deduction
Is charity tax deductible? Under normal circumstances, individuals who claim the standard deduction cannot deduct charitable donations. However, the Taxpayer Certainty and Disaster Tax Relief Act of 2020 made provisions that made some contributions tax deductible.
For the 2021 tax year, you can deduct up to $300 for monetary contributions made to qualifying charities in 2021 (up to $600 for couples that are married filing jointly).
3. Retirement Savings Contribution Credit
If you made contributions to an Individual Retirement Account (IRA), you might be able to deduct some or all of your contributions with the IRA reduction.
To qualify, you must contribute to a Traditional IRA; Roth IRAs don’t qualify. How much you can deduct —and if you can deduct contributions at all — is dependent on your income and whether you’re covered by an employer-sponsored plan.
If you’re not covered by an employer-sponsored retirement plan, such as a 401(k), you can deduct up to the full contribution amount to an IRA, regardless of your income.
4. Health Savings Account Deduction
If you have an individual Health Savings Account (HSA), you may be able to claim a tax deduction for the amount of HSA contributions during the year.
Are contributions to an HSA tax deductible if they come from an employer? Unfortunately, you cannot deduct the amount of contributions your employer made to your HSA. You can only deduct the amount of your own contributions.
5. Educator Expenses Deduction
If you’re a teacher working in kindergarten through grades 12, a principal, counselor, or aide in a school that provides elementary or secondary education, you may be eligible for the educator expenses deduction.
Educators can deduct up to $250 ($500 if married filing jointly and both persons are eligible educators) of unreimbursed expenses, such as art supplies, books, computer software, or personal protective equipment, that you purchased for the classroom.
Filing Your Tax Return
When you are preparing your tax return, it is a good idea to familiarize yourself with all of the deductions that may be available to you. This will help you to make sure that you are taking advantage of every deduction possible. There are many above-the-line deductions you can claim even if you don’t itemize your deductions.
You can use a tax preparation software program or a tax professional to ensure you get the maximum refund you deserve. The IRS site has information on finding tax preparers, and it has a directory of federal tax return preparers with credentials and select qualifications.
Note: Links to other websites or references to services or applications are provided as a convenience only. A link does not imply SouthEast Bank’s sponsorship or approval of any other site, service or application. SouthEast Bank does not control the content of these sites, services or applications.
Information contained in this blog is for educational and informational purposes only. Nothing contained in this blog should be construed as legal or tax advice. An attorney or tax advisor should be consulted for advice on specific issues.
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