Not all taxpayers may know that there are several tax deductions applicable in our annual dues to the government. Surprisingly, these deductions may come from expenses we normally incur in our homes or at work. They, however, come with a set of rules on amount coverage and computation. Here are some common tax deductions you may want to consider on your next tax payment.
Common Tax Deductions: Coverage and Computation
1. Health Expenses
- Covered: Payments for diagnosis, treatment, or prevention of any medical and/or dental conditions
- Not covered: Expenses on funeral and burial, medicines with no required prescription, toiletries, cosmetics, health improvement programs like gym or yoga, and aesthetic cosmetic surgery.
- Computation: The total medical and/or dental expenses that exceed 10% of gross income is tax deductible. Refer to the interactive tax assistant of the Internal Revenue Service (IRS) to compute health expenses deductions.
2. Income Taxes or General Sales Taxes
- Covered: Can either be income taxes withheld from wages, or general sales taxes. IRS does not allow deductions of both.
- Computation: For general sales tax deduction, refer to the IRS calculator.
3. Real Estate and Personal Property Taxes
- Covered: Taxes on real and personal properties
- Not covered: Taxes on federal income, social security, transfer or stamp on property sale, estate and inheritance, improvements to property, homeowner’s association fees, and utility service charges (water, sewer, or trash collection)
- Computation: Refer to the interactive tax assistant of IRS to compute personal taxes deductions.
4. Charitable Contributions
- Covered: Contributions to qualified organizations (supported by a bank record or a written communication from organization), amount that exceeds the fair market value of the benefit received from contribution
- Not covered: Contributions to individuals
- Computation: Refer to the interactive tax assistant of IRS to compute charitable contributions deductions.
5. Work-related Home and Car Use
- Covered: Expenses for the part of the house used for work (including real estate taxes, mortgage interest, rent, casualty losses, utilities, insurance, depreciation, maintenance, and repairs), cost of operating a vehicle for work (including gas, oil, repairs, tires, insurance, registration fees, licenses, and lease payments)
- Not covered: House/car expenses for personal or non-work operations, expenses for parking fees and tolls (even if work-related)
- Computation: To determine the amount of deductions, use either regular method or simplified option for home expense deductions, and either standard mileage rate method or actual expense method for car expense deductions.
6. Work-Related Travel Expenses
- Covered: Transportation cost, shipping of baggage, meals, lodging, dry cleaning and laundry, business calls while on trip, payment of tips, and other similar necessary expenses
- Not covered: Travel expenses for an indefinite work assignment
- Computation: Refer to the forms and other details provided by IRS
7. Work-Related Education Expenses
- Covered: Tuition fee and other matriculation like lab fees, expense on books and other supplies, transportation and travel costs, and other similar necessary expenses
- Computation: Refer to the interactive tax assistant of IRS to compute work-related education deductions.
8. Casualty and Disaster Losses
- Covered: Losses on personal or income-generating properties damaged by natural calamities
- Not covered: Losses on properties due to wear-and-tear or natural deterioration.
- Computation: The amount of loss for personal property is either the adjusted property basis or the decrease in property’s fair market value. And, the amount of loss of business property is the adjusted basis. Reimbursement from insurance must be included in computing for deductions.
9. Theft Losses
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- Covered: Losses from stolen money or property
- Computation: The amount of theft loss is the adjusted property basis (since the property’s fair market value after being stolen is zero). Special rules may apply to losses from Ponzi-type investment schemes.
To avail of these tax deductions, a taxpayer must consider computing for them and indicate them in the IRS Form 1040 Schedule A. Here’s a video from FreeLegalForms that shows what this IRS form looks like:
Knowing what the common tax deductions are will help taxpaying less of a burden for you. Keep track of these items and expenses now to save a bigger chunk of your hard-earned money for yourself.
Do you know other expenses or items that can be considered for a tax deduction? Share with us your ideas in the comments section below.