Every year, you can expect there to be some changes in taxes. It rarely stays the same, but this year there are more changes than usual. This means that you may be able to get more deductions than before. If you take the time to understand the tax changes (or have an expert do them for you), you can keep more money in your pocket.
The Standard Deduction
Once again, the standard deduction has been raised. This change occurs every so often because of inflation. Instead of itemizing all of your deductions, which would take a lot of time and paperwork, you can take the standard deduction if your total deductions are less than $12,400 for singles or less than $24,800 for married filing jointly. If they are more than that amount, you will need to itemize them if you want to claim them. This is an increase of $200 for singles and $400 for marrieds.
More 2020 Tax Deductions
The following are some itemized deductions that you may want to consider on your 2020 tax forms. This will reduce the amount of taxes you owe.
Medical Expense Deduction
To qualify for this deduction, you will need to have medical bills that total greater than 7.5% of your adjusted income. This figure can only include bills that have not been reimbursed. Only the amount above 7.5% is deductible.
You can include a wide range of bills in this category, including money paid to doctors, surgeons, dentists, psychiatrists, psychologists, and more. It includes prescription drugs, addiction programs, acupuncture, weight loss programs that a doctor prescribed, transportation to get medical care, insurance costs that an employer does not cover, and more.
American Opportunity Tax Credit
This credit is different from a deduction, but any student paying for education expenses – or parents of a student paying for them – can claim this credit. It enables the costs for education to be credited annually up to $2,500. However, it only allows you to include the costs for tuition and various fees. It does not include the costs of room and board, insurance, transportation, and more.
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Charitable Contributions
Coronavirus has given you a new way to claim up to $300 off of your taxes even if you are not going to itemize. Donations made to charitable organizations are now deductible if it is a qualified organization. Married couples can double this deduction and get up to $600 deducted from their taxable income.
Mortgage Interest
If you are paying on a mortgage, this deduction will enable you to reduce your costs. You can deduct the interest and cost of points paid during the year up to a loan amount of $750,000. If you took out the mortgage before Dec. 16, 2017, the limit of $1 million applies. Interest paid on a home equity loan is also deductible if you used the money to improve your home.
Retirement Accounts
Contributions made to a traditional IRA are tax-deductible. Deductible amounts may be limited to whether or not your place of employment – or your spouse’s – also offers a retirement plan.
Self-employment Deductions
Self-employed people can get a variety of deductions. This includes a portion of the cost of having a home office, medical and dental insurance premiums, car and travel costs (currently 57.5 cents per mile), savings for retirement, start-up costs, office expenses, advertising, and more.
Other 2020 Tax Deductions
Many other 2020 tax deductions are also available. Claiming as many as you can will lower your taxes and help you save money. Other deductions you might be able to claim include educator expenses, deductions for state and local taxes, deduction for gambling losses, and a deduction for alimony. Credits are also available to reduce your taxes.