Tax time is so much fun, said no one ever. No, that’s not true; people who are due a refund love this time of year. In fact, many people due a tax refund know that they can spend that money on anything that they want and have it mentally spent before it even hits the bank. Other people, myself included, write a check with a little bitterness and unhappiness as this is not our favorite time of year. However, it doesn’t matter whether you get money back or you pay money in; you still want to save as much on your income taxes as possible. The goal is to reduce your tax liability so that you owe the very, very least and we have several important tax deductions designed to help you save the most possible money when you file.
This is not a deduction that will work if you simply went to the doctor and did your usual checkups throughout the year. However, it is helpful when you are able to claim a big event in one year. Whether it was a negative health event such as a surgery or an accident or illness that caused you to pay significantly, or you had a big event such as a new baby born and big medical bills rolled in, those can add up and save you significantly on your income taxes.
The deduction is as follows: You can deduct any medical expense that exceeds 10% of your adjusted gross income. Let’s say your AGI is $100,000 and that means 10% of that is $10,000. Let’s say you had twins this year and even with insurance, your medical bills were $58,000 thanks to long NICU stays. You can deduct $48,000 of that. Of course, that’s an extreme case, but it’s just an example.
It’s surprising how many people don’t realize what a great deduction this is. You get to go ahead and deduct the amount you donated to charity throughout the year, even if you don’t think you donated. Up to half of your AGI can be deducted in terms of donations. That means every week when you write that check at church to tithe, every time you donate money to your kids’ schools, to a cause, to a charity event and every time you get a receipt for donating clothes, furniture, items, money, anything; you get to deduct it.
State and Local Income Taxes
Did you know that the IRS has been allowing taxpayers to deduct their state and local income taxes for more than a decade now? You can pick one, but not both. You can take a standard deduction for your state or you can keep careful records throughout the year on everything you purchased and deduct all the sales tax you paid for those things. Typically, this is only useful if you bought some major items, such as a new car, new appliances, new furniture or a combination of all of those big-ticket items.
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