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SHARE iStock Death and taxes may be the only certainties in life, but if you understand wrire to maximize deductions and credits, you can lessen the impact of at least one of those two absolutes. The first thing you need to know is that credits are different from deductions.
A credit is a dollar-for-dollar reduction in your taxes, while a deduction simply reduces your taxable income. Louis CPA Douglas Mueller.
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If you pay a lot in mortgage interest, state taxes or self-employment costs, among others, it might make sense to itemize more on that later. Tax preparation software — or a good tax preparer — can help you navigate the maze of tax breaks, but it helps to understand the picture as you go through the year, ideally collecting invoices along the way.
What not to do: Get credits where due In the hierarchy of tax breaks, credits give you the most bang for your buck. The biggest categories for credits include children and childcareeducation and energy efficiency. These are some of the big ones.
Many energy credits expired in but credits for residential wind turbines, solar power and geothermal live on through You may also be able to claim the Lifetime Learning credit for other years. This is a big one as more people move to high-deductible plans.
The money can be rolled over to other years and used for a range of qualified expenses. Moving expenses and job search.
If you moved more than 50 miles for a job within a year of starting a new job, you can deduct expenses related to the move, including mileage, lodging moving services and supplies. Anyone can take the standard deduction, says Mueller, and it does not change with income. Among taxpayers who do itemize, however, the numbers are pretty substantial.
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How do you know which route makes the most sense? If they come close to the standard deduction, odds are that it makes sense to itemize after you account for all the other breaks, notes Lisa Greene-Lewis, a CPA at TurboTax.
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Here are key itemized deductions: If you buy a new home, you can deduct any points you pay to secure the mortgage in a writs year. If you refinance, notes Greene-Lewis, you need to spread those points over the life of the loan — though you get to andd them all at once if you refinance again.
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Odd as it click to see more, you can deduct certain taxes, including property tax on your primary residence, and state writ local income taxes. What about sales tax? That deduction — which lets tax payers deduct state and local sales tax in lieu of income tax — expired at the end of This is a category unto its own.
You Might Be Able to Take a Deduction for Your Accounting Fees The fees you pay for tax preparation are usually tax deductible. The 6 Best Tax Deductions for Tax deductions can save you big money on your return. What about sales tax? Instead, you pay tax on your "basis" — what you paid — for the shares. For most investors, the simplest way to reduce taxable income is to take full advantage of tax-deferred investment accounts.
Suffice it to say, if you are self-employed, the odds are pretty good that you will benefit from itemizing your deduction. The key thing is to document your gifts; TurboTax offers an app that calculates fair market value of goods and tracks donations on the spot. Foe you do a lot of volunteering?