By taking advantage of all the tax deductions, credits, and strategies that apply in your situation, it’s possible to reduce your tax bill and even receive a refund. Just know what is available to you. The information below shares a few tips you can use to owe less on Tax Day.
Choosing Itemized vs Standard Deduction
The standard deduction takes one fixed lump sum off your bill. If you incurred several tax write-offs that add up to more than that amount, consider itemizing for the best results.
Open a Health Savings Account
Contributions can be deducted from your taxes (even if you don’t itemize), plus account withdrawals for medical purposes are tax-free. This account requires a high deductible healthcare plan.
Home Sale Exclusion
Eligible homeowners who sold their primary residence for more than they originally paid won’t be taxed on the gain. For example, if you bought your home for $200,000 and sold it in 2020 for $400,000, you wouldn’t owe tax on the $200,000 increase. Gains from an investment property on the other hand would be taxed.
Use Credits for Dependents
The partially refundable Child Tax Credit puts $2,000 toward your tax bill for dependents under the age of 17 up to a certain level of income. If you are a caregiver for a parent or other adult, you can claim a $500 non-refundable tax credit.
Create an Energy-Efficient Home
Any eco-friendly upgrades you made to your home in 2020 could qualify you for a tax credit of up to $500.
Write off Student Loan Interest
If you are paying off student loans, you can deduct up to $2,500 of the interest from your taxes. The CARES Act suspended student loan interest in 2020, but this is still a good credit to use for tax year 2021.
Want more ways to save come tax time? Call me for a referral to a trusted tax professional and see why when you work with me, #LifeIsGood!