According to a variety of reports, there were over a trillion dollars given out in tax deductions (such as the child tax credit) every year for the past several years because of the use of itemized deductions on 1040s. However, that was with only 45 million Americans using these deductions to get tax deductions. Because of that, there can be a lot more money in tax deductions waiting out there for millions of Americans. However, that begs the question as to what kind of tax deductions Americans can claim. Having said that, there are a variety of tax deductions that are quite common, with many people being eligible for them.
However, there are also quite a few uncommon tax deductions that many people may not have heard of. Because of that, there can be quite a significant amount of tax deductions left unclaimed every year because people didn’t realize they were eligible for them. With that in mind, it’s worth noting which kinds of tax deductions are out there and which ones you may be eligible for. However, it’s also noting that many states vary on what can lead to a tax deduction, so it’s worth researching tax deductions in your state. There are a variety of ways to do so, such as Trump Tax Reform, that can help Americans find out what they may be entitled to.
Common Tax Deductions
Charitable Contributions
Charitable contributions are probably the most popular way to get a tax deduction, probably because you get to do a good deed while you’re at it. While very few people would forget any significant charitable contribution you’ve made during the year, the little ones can count too. This is especially true if they come out of your paycheck every month; if you keep track of these, then you’ll be able liable to get a decent tax deduction when tax season comes around. Because of that, it’s always worth keeping note of any contributions you make. You may also be able to claim a tax deduction based on any out of pocket expenses you had while working with a charity during the year, so keeping track of these can be extremely beneficial.
Earned Income Tax Credit
Millions of low-income people claim this credit every year; however, roughly a quarter of eligible people fail to claim it every year. While this may not be a tax deduction per se, it is a refundable tax credit and can end up being quite significant. According to many reports, many Earned Income Tax Credits in 2018 ranged from $519 to $6,431. This, however, depends on your income throughout the year and can fluctuate wildly from year to year. This is because the credit is designed for people who earn a low to moderate wage and designed to supplement wages if there’s a significant change from year to year. It’s also worth noting that you can claim for the past three years if you were eligible but for some reason didn’t claim.
Uncommon Tax Deductions
Hiring A Babysitter
This one is so uncommon that very few people are even aware that it exists. However, if you spend a significant amount of time every year volunteering for charity and have to hire a babysitter, then you may be eligible for a tax deduction. However, it’s worth noting that this only applies if you’re not working for any pay. In this case, paying a babysitter is considered a charitable contribution by the federal tax court. Because of this, it’s treated the same way as any other type of tax deduction. Because of that, it’s a win for you and your babysitter.
Sales Taxes
All of us have to pay state and sales taxes as well as a federal tax. However, what many people may not know is that many have the option of deducting sales taxes or state income taxes off their federal income tax. If you happen to live in a state that doesn’t have its own income tax, then this can be a significant tax deduction. There’s also the fact that if you bought a significant item, such as an engagement ring or car, then you can use your sales tax as a deduction on your federal tax. However, you will have to itemize this list, but the IRS provides a variety of guides on how to do so.
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