If you pay taxes every year, be sure to use tax deductions, as using them appropriately can lower your tax bill and increase the amount of your tax refund. In this article, we’ll take a look at five legal tax deductions you're probably not taking advantage of.
If you are looking for something more specific regarding tax reduction strategies, financial advisors like Ridgewoodinvestments.com are a great avenue for information.
If you make significant charitable deductions in the form of a payroll deduction or a check, then in all probability, you'll remember them while calculating your taxes. However, did you know that you can write off any out-of-pocket costs that you may have incurred while working for a charity?
For example, any ingredients for dishes prepared for the soup kitchen of a nonprofit organization or stamps you may have bought for a school's fund-raising mailing count both falls under the head of charitable contributions. However, ensure that you've kept the receipts.
If your total contribution is more than $250, you should get an acknowledgment from the charity to document the support that you provided. You may want to read about how charitable contributions deductions have come about.
As a result of the Covid-19 pandemic, many taxpayers gravitated to online gambling sites. If you didn't do well, you might be able to deduct the losses you suffered while gambling. However, keep in mind that you can obtain such deductions only if you itemize. Furthermore, the amount you can deduct is limited to the total amount of gambling winnings you report as taxable income. Furthermore, over and above gambling losses at a racetrack or a casino, you can also deduct the cost of non-winning lottery, bingo, and raffle tickets. Ensure that you keep all of your gambling receipts (i.e., any losing tickets).
If you've served on a jury in the last financial year, you would most likely have got your full salary from your employer while on jury duty. As a result, some employers ask their employees to turn over the jury pay they received to their company coffers. However, the IRS insists that you must report those jury fees as taxable income. But, if you are in this scenario, you get to deduct the money you hand over to your employer.
A disability insurance premium is probably something that you may overlook as a possible deduction. Such insurance helps in providing you with supplemental income if you become disabled and are unable to work. However, the deductibility of such premiums is limited and, at times, complicated. Essentially the disability insurance that is eligible for tax deduction is the kind that will cover any business overhead expenses that you may incur when on leave due to disability. Examples are the cost of utilities or rent for the duration of your disability leave.
However, if you deduct the premium amount, then remember that any policy proceeds paid to you will be considered taxable income. However, policy benefits won't be taxable if you pay for the premium yourself and don't deduct the premium amount. Furthermore, any insurance proceeds will be taxable if your employer pays your disability insurance cover premiums.
This deduction is not available for employees. Employees cannot deduct the 7.65% of the salary amount that is siphoned off for Medicare and Social Security. However, if you're a self-employed individual and pay the entire 15.3% tax on your own, you can write off half of the amount as a tax deduction. Keep in mind that you do not need to itemize the amount to take advantage of this deduction.