Tax deductions can significantly reduce taxable income, making it essential for taxpayers to understand how they work. This article breaks down the basics of tax deductions and how to maximize them.
What is a Tax Deduction?
A tax deduction is an expense that can be subtracted from gross income to reduce the amount of taxable income. Common deductions include:
- Charitable Contributions: Donations to qualified organizations.
- Medical Expenses: Certain unreimbursed medical costs.
- Mortgage Interest: Interest paid on a mortgage for a primary residence.
Standard vs. Itemized Deductions
Taxpayers can choose between standard deductions and itemized deductions. The standard deduction is a fixed amount, while itemized deductions require detailed record-keeping. Choosing the right option can lead to significant tax savings.
Keep Accurate Records
To maximize deductions, it’s crucial to keep accurate records of all expenses. This includes receipts, invoices, and bank statements. Proper documentation can help substantiate claims during tax filing.
By understanding tax deductions, taxpayers can effectively reduce their tax liabilities and improve their financial situation.
