Tax season can be a stressful time for many individuals and families, but understanding the various deductions and credits available can help ease some of that burden. In this article, we will explore 25 tax topics that individuals should be aware of when preparing their taxes.
1. Taxable Social Security benefits: Depending on your income level, a portion of your Social Security benefits may be subject to federal income tax.
2. Capital gains and losses: If you sold stocks, bonds, or other investments during the year, you may have capital gains or losses that need to be reported on your tax return.
3. Self-employment tax: If you are self-employed or have freelance income, you may need to pay self-employment taxes which cover both the employer and employee portions of Medicare and Social Security taxes.
4. Alimony payments: Alimony payments made under divorce or separation agreements may be deductible by the payer and taxable as income for the recipient.
5. Rental property income/losses: If you own rental properties, you must report any rental income received and can deduct certain expenses associated with maintaining those properties.
6. Health savings accounts (HSAs): Contributions made to an HSA may be deducted from your taxable income if they meet certain requirements outlined by the IRS.
7. Moving expenses deduction: While no longer available for most taxpayers starting in 2018 due to changes in tax laws, active-duty military members who move due to a permanent change of station may still qualify for this deduction.
8. Education loan interest deduction: Individuals paying qualified student loan interest during the year may be eligible for a deduction up to a certain limit based on their modified adjusted gross income (MAGI).
9. Adoption tax credit: Qualified adoption expenses paid by adoptive parents can often result in a non-refundable tax credit which reduces their overall tax liability.
10. Gambling winnings and losses: Gambling winnings must typically be reported as taxable income, but losses can be deducted up to the amount of winnings.
11. Foreign earned income exclusion: U.S. citizens or residents living and working abroad may qualify to exclude a certain amount of their foreign earned income from taxation.
12. Qualified business income deduction (QBI): Certain taxpayers who have qualified business income from pass-through entities like partnerships or S corporations may be eligible for a deduction on their taxable income.
13. Charitable contributions limitations: While charitable contributions can provide deductions, there are limits based on your adjusted gross income and the type of organization you donate to.
14. Alternative minimum tax (AMT): The AMT is an additional tax calculation that ensures individuals with high deductions and credits still pay a minimum amount of tax. It’s important to understand whether you might be subject to this alternative method of calculating taxes.
15. Residential energy credits: Taxpayers who make energy-efficient improvements to their homes, such as installing solar panels or geothermal heat pumps, may qualify for certain tax credits.
16. Student loan forgiveness and discharge: In some cases, student loans that are forgiven or discharged due to specific circumstances may not be considered taxable income.
17. Home office deduction rules: If you use part of your home exclusively for business purposes, you may be able to deduct expenses related to that portion of your home.
18. Child and dependent care expenses credit: Taxpayers who incur childcare expenses while they work or look for work may qualify for a credit that helps offset those costs.
19. Retirement plan contributions limits and options: Understanding contribution limits for retirement plans like 401(k)s or IRAs can help individuals maximize their savings while also potentially reducing their taxable income.
20. Medical expense deductions: Certain medical expenses that exceed a percentage threshold of your adjusted gross income may be deductible on your taxes.
21.States and local taxes deduction: Taxpayers who itemize deductions can deduct state and local taxes paid during the year, subject to certain limits.
22. Mortgage interest deduction limits: Homeowners can deduct mortgage interest paid on qualified homes, but there are limits based on the amount of mortgage debt and whether it is acquisition debt or home equity debt.
23. Casualty and theft losses: If you experienced property damage due to a casualty event like a fire or natural disaster, you may be able to deduct some of those losses not covered by insurance.
24. Exclusion of canceled debt from income: In certain circumstances, if a lender cancels or forgives your debt, you may be able to exclude that forgiven amount from your taxable income.
25. Early withdrawal penalties for retirement accounts: Withdrawing money from retirement accounts before reaching the age of 59 ½ usually incurs an early withdrawal penalty in addition to being subject to income tax.
It’s important for individuals to familiarize themselves with these topics as they navigate their tax preparation process. However, it’s always recommended to consult with a tax professional or use reputable software when filing taxes to ensure accuracy and maximize available deductions and credits.