Tax Deductions You Should Understand
As an adult, you likely have experience with filing your taxes every year. However, did you know that major life changes can have a significant impact on your taxes? These are some interesting tax write-offs you may not know about.
You may think that you need to be a full-time student to get tax breaks on continuing education, but this is not the case. Everyone can get educational deductions. The lifetime learning credit applies to undergraduate, graduate, certification and continuing education programs. However, the educational institution must meet specific requirements.
You can write off up to 20% of your tuition. Each year, you can deduct up to $2,000 with a lifetime maximum of $10,000.
The American opportunity tax credit can also be used to reduce your taxes. Eligible students in four-year degree programs can save $2,500 per year on their taxes. However, your income should be less than $90,000 for singles and $180,000 for couples filing jointly.
If you contribute to a retirement account, such as a 401(k), IRA or another plan, you can save up to $1,000 on your taxes if you are single and $2,000 if you are married and filing jointly. This savers tax credit delays your taxes on invested money until you start pulling it out, when your income is significantly lower. However, qualifying for these credits also requires that your income be less than $34,000 if you are single and $68,000 if you are married.
You can deduct up to 50% of your contributions depending on your income level. In addition, any contributions you make up until the deadline for filing your taxes can be considered.
Self-Employment or Freelance Breaks
Many people now participate in the gig economy or work for themselves. If you have taken on freelance work, you likely have to pay self-employment taxes, but you have numerous deductions as well. For example, you can deduct all your office supplies, advertising, furniture, travel, computer equipment and software, mailing costs and every other business expense, including insurance, licensing, education, books, etc. You can even deduct your health insurance premiums if you aren’t covered under a spouse’s work policy.
Your home office is a deduction as well, so you can get credit for electrical, internet, mortgage interest, insurance, property taxes and other expenses. However, there is a limit of 300 sqft, so if your home is 1500 sqft, you have to divide these expenses based on the square footage of your office space.
These are only a few of the tax write-offs you may qualify for. Research all your available deductions to save money every year on your taxes.