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In life, we often hear that one thing or another enjoys “tax deduction”. Knowing which things can enjoy tax deductions can save a lot of money every year.
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Tax deduction means that when filling in the tax return, you can apply for tax deduction on the grounds of purchasing charitable gifts, housing loans, business expenses and other expenses. Donating $100 to charity does not mean that you can pay $100 less tax, but that your taxable income will be reduced by $100. If you donate $100 and the marginal tax rate is 28%, you may pay $28 less income tax. The effective tax rate for most Americans is 0, so withholding tax usually has no practical significance.
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The following examples will help you understand when you can deduct taxes.
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Charitable donation: After donation to charity, if the total deductible amount of medical expenses, housing loan interest, charitable donations and other items is greater than the standard deduction amount, you can enjoy the standard deduction; Deductions sometimes face certain restrictions, but they are rarely enforced. In 2011, when married couples filed tax returns together as tax filers, the standard deduction was $12750; In other words, if the total deductible amount of your medical expenses, mortgage interest, charitable donations and other related expenses is less than the 12750 dollars that most couples have reached, you will not be able to enjoy this kind of tax deduction.
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Housing loan interest: As with charitable donations, if the deductible amount of the housing loan interest of the first house is greater than the standard deduction amount, the income tax can be deducted. Generally, the interest on the second set of housing is not deductible. The deduction of interest on housing loans for investment housing takes another form and is not affected by the standard deduction clauses.
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Medical expenses: enjoy a single deduction. The personal medical expenses should exceed 7.5% of the income, and the deduction is only for the part exceeding 7.5%. Enjoy standard deduction. The total deductible amount of personal medical expenses, charitable donations and mortgage interest must be greater than the standard deduction amount.
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Operating expenses: If you run a small-scale enterprise, you can fill in a tax return and apply for deduction of general operating expenses. Suppose you open a day care center at home. When you pay taxes based on the income of this business, you can apply for deduction of the food and other expenses when caring for children. In some cases, you can also claim tax deduction based on the depreciation of the housing space for charity. If the IRS believes that you are not engaged in such business out of interest, you can also apply for deduction of other income in case of deficit.
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Understanding these basic concepts will not make it easy for you to fill out your own tax returns, especially when you are running a business; But knowing how tax deduction works can help you make better spending decisions throughout the year. For example, if you meet the conditions for applying for deduction through charitable donation and now know that it can enable you to enjoy tax relief, you can enjoy deduction through charitable donation.
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Before filling in the tax return, please ask the senior certified public accountant for advice.