Tax Deductions and Credits That You Can Claim
“Income tax return” refers to that notorious document individuals file every year with the Internal Revenue Service. The return reports the gross income of an individual and their profits and or losses, plus their tax deductions and credits. On average, an individual pays around 30% of their total income in taxes. Filing taxes can get very confusing if you are self-employed: a convenient reason why it never pops up first on any person’s to-do list. No matter how tedious and challenging the task of filing your taxes may be, it is a necessary evil for which you could end up facing dire consequences if you are careless about it. To follow, it is advisable to hire an accountant for freelance workers.
What if you had significant medical expenses last year, which were not covered by your insurance, or had any other sudden expenditure? This is where the concept of tax deductions and credits comes into play.
Tax deductions and credits refer to lawful claims that can reduce your tax liability. Tax deductions do that by lowering your taxable income. Tax credits are a dollar-for-dollar reduction of your actual tax liability. They both encompass expenses a taxpayer incurs and can wield on their tax return. This said, an individual must be aware of those costs that can reduce their tax. Many income tax services for entrepreneurs break them down to the following; here is a list of tax deductions and credits you can lawfully claim, as curated by an accountant for freelance workers, to help you reduce your tax liability.
- Charitable Donations
This is the most common of tax deductions. The tax money you pay the government is used for the welfare of citizens and the development of the country. When you donate money to a charitable cause, however, the amount can be subtracted from your taxable income. The lower your taxable income, the smaller the amount of taxes you owe. Our accountant for freelance workers suggests that is not all; there are other ways, in this category, through which you can save money on your income tax return. For example, you can donate your used furniture to a local Habitat for Humanity store and save on your income tax return! This does involve some documentation. It is advisable to hire a tax expert that will complete all of the tax forms necessary to legitimize your donation.
- Child Care Credit
As a parent, you may find that child care takes a massive toll on your pocket. The IRS has made it less painful to file your income taxes by providing tax benefits in the form of a Child Care Credit. As per the IRS’ definition, it is a “credit for the costs of care, for a qualifying individual, to allow them to work or look for work.” Current tax regulations enable you to claim up to $600 invested in child care, if you are a parent of one child, and, if you have two kids, you can claim up to $1,200 – either one as a direct, dollar-for-dollar reduction (tax credit) of your income tax.
- Medical expenses
Medical treatment can have a huge impact on your savings if your insurance does not cover it. This is a main reason for having medical insurance, whether you are a working adult or even an exchange student. If your insurance does not cover all of your expenses, then you can claim a tax deduction for your share of costs. It should be said, it can be challenging to claim a tax deduction for medical expenses, as taxpayers under the age of 65 can only write off those medical expenses exceeding 10% of their annual income. Yet, no matter how dicey this potential deduction may be, a reliable organization offering income tax services for entrepreneurs can possibly find a way out for you. Thus, it is advisable to hire an expert to address such medical and tax matters.
Education is an essential cornerstone shaping the future of a country. It is a well-established fact that education expenses can yield a tax break for you. There are two ways by which you can claim a tax deduction for education expenses. One way is to opt for the Lifetime Learning Credit. Graduate school students can get this tax credit. Per IRS regulations, post-secondary school students can claim a credit up to $2,000 of their qualified education spending. The amount of the exact credit depends on the annual income range of the taxpayer or their parents/guardians. Tax deductions and credits are a fine line to walk on. It is a smart move to hire an accountant for freelance workers to guide you through the tips and tricks pertaining to education expenses, thus helping you save on taxes.
- Social Security and Medicare taxes
This tax deduction is meant for freelance workers or self-employed individuals. Self-employed individuals benefit from numerous tax breaks. One of these includes 50% of their Social Security and Medicare tax responsibility. If you are operating a business by yourself, then you are supposed to pay 15.3% to Social Security and Medicare. Simultaneously, you can also claim a tax deduction for the 7.65% tax amount an employee usually pays, since you are operating a business all on your own. No matter how little this amount may seem, it is a valuable tax deduction that salaried people otherwise miss out on. This is one reason why you need to reach out to an expert for filing your income tax returns.
- Business deductions
Small- and large-scale businesses have a plethora of tax break opportunities, and it is up to each business owner to identify and claim them. Whether it is office supplies or furniture you bought for your business, it all may qualify as a tax deduction. However, you need to know the right forms and paperwork to properly make your claims.
Life is unexpected and so are expenses! At the end of every year though, one thing is guaranteed: you have to file your income taxes. Plan ahead and manage your income tax filing accordingly, then. Agro Accounting CPA offers an online CPA platform that facilitates income tax services for entrepreneurs, helping you manage your accounting and tax preparation in the most convenient way possible.