What Are Tax Deductions?

February 7, 2020

Whether you do taxes solo or with the help of Encino tax advisors, it helps to understand terms such as adjusted gross income, credits, deductions, dependents, itemized deductions, standard deductions and much more. Here’s a look at tax deductions, which relate to several of these terms.

Overview of Tax Deductions

Tax deductions lower your taxable income. They are not tax credits, which reduce your tax bill dollar-for-dollar. Hundreds of possible deductions exist. You can take them in standard or itemized form. Los Angeles Tax Preparation services can advise you on which route to go.

Standard and Itemized Deductions

• Standard deductions are:
• Flat-dollar reductions in annual gross income
• Vary based on your filing status
• Become bigger if you are 65 or older, or blind

For the 2020 tax year, the standard deduction for a single person is $12,400. It is $24,800 if you’re married filing jointly, $12,400 if you’re married filing separately and $18,650 if you file as head of household.

Itemized deductions can lead to a bigger reduction in tax liability but not always. These deductions require more time and effort, and you should have proof to back up each deduction you claim. Whichever type is better in your situation may change from year to year. Let Encino Tax Consultants calculate your return both ways to see if you ought to go itemized or standard.

Examples of Common Deductions

Here’s a look at some common deductions:

• Student loan interest
• Charitable donations
• Medical expenses
• Mortgage interest
• Gambling loss
• Self-employment expenses
• Home office
• Educator expenses

The specifics for each deduction vary. For instance, if your unreimbursed medical expenses total more than 7.5% of your annual gross income, you may qualify for the medical expenses deduction. However, some exceptions apply. To give two examples, the deduction does not cover over-the-counter medications and most cosmetic surgeries. If you’re in doubt about your eligibility for any deduction, consult a tax professional.