Types Of Tax Deductions And Creating A Tax Deduction Checklist

Posted by Rana & filed under Tax & Bankruptcy Law Information.

Tax deductions, or deductions which can affect a taxpayer’s income tax, represent expenses acquired. These expenses are deducted from the gross income when computing income taxes. This results in a lower taxable income and lowers the amount of taxes to be paid. There are numerous factors which can affect standard tax deductions, including federal, income, mileage, medical and home improvement tax deductions.

Federal Tax Deductions

Federal tax deductions come in two types: standard deductions and itemized deductions. In standard federal tax deductions, you can deduct based on your marital status, age, and disability. The deductions change based on if you are filing single, married but separately, married by jointly, or household. You can also receive an additional deduction if you are over the age of 65 or are blind.

If your income tax deductions are greater than standard deductions, you can file an itemized deduction. Itemized deductions can include mortgage or home equity loans, state taxes, local taxes, medical expenses, or charitable donations. If you make a charitable donation, be sure to have a receipt with the total amount of your donation in order to back up the donation.

Mileage Tax Deductions

If you use your car for business, medical, moving, or charitable reasons, you can use a mileage tax deduction. This is often used to reimburse employees for their mileage or volunteers for their driving time to and from community service locations. Typically the rate is changed annually, but can be changed midway through the year in the event or rising gas prices.

Computing your mileage tax deductions can be tricky as it is based on the months of the year, but there are free websites on the Internet which will assist you in computing the total cost. Since you deduct the rate per mile, it is important to keep track of the miles you cover each time you use your vehicle for a business, medical, moving, or charitable reason.

Medical Tax Deductions

If your healthcare related costs are above a certain amount, you can claim medical expenses as itemized tax deductions. You can only deduct medical expenses which exceed 7.5% of your adjusted gross income. For example, if you and your spouse have a combined adjusted gross income of $80,000, you would need at least $6,000 in medical costs in order to reach the 7.5% limit. If you have dependents, be sure to include all of their medical expenses in addition to yours.

Medical tax deductions include expenses for laser eye surgery, eyeglasses, medical procedures, medicines, and dental treatment. You can even use the mileage to and from medical treatments and drug abuse and alcohol treatment as deductions. Although laser eye surgery is included as an approved medical tax deduction, cosmetic surgery purely for appearance is not an approved deduction. In order to itemize your medical tax deductions, you need to keep track of and save all of your medical bills and payment statements.

Home Improvement Tax Deductions

Home improvement tax deductions cover costs you pay which add value to the home. Whereas a repair keeps the value of the home from dropping, it does not increase the value of the home. Home repairs, including painting, repairing leaks, or replacing a broken window, do not serve any purpose to increase the home’s value. All you are doing when you conduct a home repair project is bringing the home’s value back up to its original value before the damage occurred. A home improvement project is done in order to raise the value of the property from the original value.

In addition to home improvements such as the addition of a swimming pool, fencing in your backyard, or adding a room, you can also deduct for improvements made to conserve energy. When considering your home improvement project, it is important to know that the projects that count for a home improvement tax deduction changes based on geographic location, size and age of your home, and the exact project you will be completing.

At the start of each tax cycle, you should research the various types of tax deductions on the Internet and create a list of tax deductions. With that list, you can create a tax deduction checklist and keep track of all tax deductions for that year. Keep any receipts and payment statements in the same folder so that organizing and paying your taxes will become a simpler process. Remember that you need proof of each deduction in the event you are audited. By keeping organized and informed of the types of tax deductions, paying your taxes should become worry-free.

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