Tax deductions are oft heard phrases from accountants compiling the tax returns of their clients. These deductions, allowed by the government allow the taxable income of an individual or a company to be reduced by a certain amount or percent. You can deduct a tax deduction from your table income and pay tax only on the resulting amount. The real purpose of tax deductions is to decrease the amount of tax owed by an individual to the government.
There are many types of tax deductions allowed by the government. Many people, including businesses are not aware of some of these deductions. If you have a desire to save some money in the form f tax utilizing these deductions, it is prudent to hire the services of a tax professional. These professionals have deep knowledge of different types of tax deductions. They can guide and help you in using these tax deductions to lower your tax liabilities in a legal manner.
In addition to deductions, there are also exemptions and tax credits that help in reducing tax burden of individuals and businesses. But where deductions and exemptions actually lower taxable income, tax credits reduce tax itself.
There is a feeling among common people that tax deductions are only for the rich and big businesses. But ths is not true as anyone spending money under certain heads can claim these deductions and lower his tax liability. Some of the most common tax deductions allowed by the government are as follows.
- Deductions for premiums paid for health insurance
- Deductions for donations to charitable organizations
- Deductions for savings done for retirement
- Deductions on spending on environmental friendly products and services
- Deductions on expenses incurred of kid’s education
- Deductions on interest paid on student loans
- Deductions on interest paid on mortgage loans
In addition, there are certain standard deductions available to taxpayers belonging to different categories.
Single or married filing separately- $6350
Married filing jointly -$12700
Head of a household- $9350
Your contributions to your retirement plan such as 401(k) are also tax deductible. But since these contributions are already deducted by your employer from your salary or wages, you cannot claim additional deduction at the time of filing income tax returns.
Many types of expenses when you are running your own business are also allowed under tax deductions. You should talk to an experienced accountant to reduce your tax liability when filing income returns.