Tax Deductions and Credits Can Take a Chunk of Money Off Your Tax Bill
When you’re climbing uphill on a mountain of owed taxes, you may easily panic. However, it might not be as scary as it might initially look. As you go through your income taxes, you will see an opportunity to break a huge chunk of it off to conquer it.
Only a certain percentage of your taxes is considered “tax deductible” and it varies depending on your deductions. These take away from the overall amount of taxed income you owe and put you in a lower percentage of personal income tax owed.
The standard deduction for a person in 2018 is $12,000 per person. This is broken down into tax deductions of $12,000 per person for married filing separately or a single filer, $24,000 for married couples filing jointly and $18,000 for those filing as head of household.
So, an average family, with two kids, who file jointly will see a tax deduction for $24,000. Add this to your dependent tax credits and you should be getting big reduction on your taxes.
Never forget about your itemized deductions as well, which can include anything from mortgage interest paid to medical expenses. Anything that can be deducted will add toward your personal exemptions. Therefore, if you have a $18,000 personal exemption and a $20,000 itemized deduction, you’ll owe nothing until you reach $38,000.
Self-employed individuals will also be able to deduct expenses from car travels, supplies, and even equipment. It’s all deductible if it was used primarily for business.
Retirement Contributions Are Tax Deductible
If you’re still struggling to climb to the top of the treacherous Tax-berg even after personal exemptions and tax credits, there is something else you can do. Adding some warmth to the body and soul to carry you through the journey, retirement contributions can lower your taxable deductions by as much as $6,500.
Imagine you and your spouse donating to the IRA contribution and getting an $13,000 tax deduction. This could help your owed balance disappear quickly.
There are other sponsored retirement plans there such as a 403k and 401k that give up to $18,000 in protection.
Retirement contributions tend to push everyone to the top of their Tax-berg, giving them a sense of relief and accomplishment.
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