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The best tax deductions in 2022
Reduce taxable income, reduce and lower taxes. That is the name of the game in tax deduction. Now that we better understand tax deductions — and the two types that tax filers must choose from — let’s look at the most common tax deductions available to you when preparing your 2021 tax returns.
Student loan interest deduction
Student Loan Interest is a popular deduction among all college graduates (and their parents), especially among those with massive student loan debt. Paying back student loans can be quite a long and grueling process, but the student loan interest deduction does offer a little relief.
This deduction allows filers to deduct up to $2,500 from taxable income if they paid interest on a qualifying student loan, either for themselves or a dependent.
There are qualifications, of course, student loan deduction depends largely on modified adjusted gross income (MAGI) and the respective tax bracket. For example, if a filer’s MAGI is less than $85,000, or $170,000 if filed jointly, then student loan interest paid on both federal and private student loans can be deducted. Here are a couple of examples of the criteria:
- Education of others: If the loan was taken out in your name for someone else (for a child or dependent) a deduction is permitted.
- Education expenses: If the loan was used for qualified education expenses like tuition, books, housing, and transportation.
- Forced repayment: Even if you are legally obligated to repay the loan or if wages are being garnished to repay the interest can still be deducted.
Note: Most federal student loans were suspended in due to the pandemic but the interest paid before that time can still be deducted from 2020 tax filings.
Home office and self-employment deductions
The ongoing pandemic has changed the face of work. Due to the circumstances, many employees were forced to work from home while others used the opportunity to start their own home-based businesses. What many do not know is that there are tax deduction opportunities for self-employed, freelancers, and others who work from home.
Home office: These days many people are using their homes as their office. Home office deductions could provide some tax relief. Property taxes, rent or mortgage, cost of utilities, and repairs could all have an impact on tax savings. Per IRS Publication 587, a percentage of your home’s square footage, the part used for business-related activities, could be deductible.
For instance, if your home office takes up 15% of your home’s square footage, then 15% of your home’s expenses could be deducted from taxable income. Make sense? Check out the publication above for a more thorough explanation.
Vehicle: Maybe part of your day consists of meeting clients or vendors. The expenses that come with using your vehicle can be deducted too, https://paydayloanadvance.net/payday-loans-al/ roughly $1.17 for every two miles traveled when used for business-related activities. So keep a mileage total. At the end of the year, the number of miles driven for business can be multiplied by the IRS mileage rate and be deducted from taxable income.
Self-employment taxes can become tax deductions: Yes, even self-employment taxes (rate of 15.3% of net earnings) can be deducted as a business expense, half of it at least. For example, if you owe $4,000 in self-employment taxes, come tax time $2,000 would qualify as deductible on your Form 1040.