Paying taxes is never fun and can often seem daunting, but with a little know-how, you can take advantage of a slew of deductions, credits and breaks that can significantly reduce the burden on your budget. For instance, all taxpayers are entitled to the standard deduction — $12,950 for single taxpayers, or $25,900 for married couples filing jointly, and $19,400 for the head of household. But, there are additional deductions that taxpayers can include to help reduce their taxable income.
If you had a lot of expenses in 2022, your total qualifying Itemized deductions may exceed the standard deduction. Additionally, there are deductions that everyone qualifies for that can make your tax situation a little better.
Here are a few deduction categories to know about before you file your taxes.
Health savings account deduction
For people who have a high-deductible health plan, a health savings account (HSA) helps to plan for unexpected medical expenses by allowing you to set aside pretaxed money in case of emergency. If you’ve contributed in 2022, your contributions can be deducted from your gross income.
*Note that only your own contributions qualify; if your employer pays into your HSA, their contributions don’t qualify.
Medical deduction
If you were hit hard with medical expenses in 2022, you could reduce your taxes through a medical expense deduction. Taxpayers can deduct the unreimbursed or not fully covered medical expenses that exceed 7.5% of your adjusted gross income. A wide range of medical procedures qualify, including preventative care, treatment, surgeries, mental health care, dental and vision. The IRS even allows for necessities like glasses and contact lenses, hearing aids, pregnancy tests, wheelchairs and more. Additionally, the IRS allows you to deduct expenses that you paid for transportation to your appointments, like mileage, bus and train fare, or parking fees.
*Note that any medical expenses paid with an HSA don’t qualify for the medical deduction.
Student loan interest deduction
Students and parents who have been paying student loan debt for themselves or their dependents can qualify for the student loan interest deduction, and claim up to $2,500 of any interest paid on student loan debt. While all lenders qualify, borrowers must make less than $70,000 (or $145,000 if filing jointly) to take the deduction.
*Note that the student loan interest deduction is not itemized, it’s subtracted from your income.
Child/dependent tax credit
If you have a qualifying dependent, you can get $2,000 per child back from the government. To qualify, kids must be under 17, related to you, be claimed as your dependent, live with you for at least half of the year, rely on you for financial support, and be a US citizen. While the child tax credit was increased to $3,600 last year, to help alleviate pandemic-related financial stress, it’s now back down to the standard $2,000 per child.
Business deductions
Taxpayers who run their own businesses and have made $400 or more through this venture are required to file an income tax return. But, on a positive note, you can reduce your taxable income through business deductions. These expenses must be necessary for you to conduct business, and also be a common cost of operating in your industry. Common business deductions include home office, insurance, automobile costs (if you depend on it for work), legal and professional development fees, licensing, professional dues, and much more.
IRA/401k deduction
Planning for retirement not only gets you long-term benefits, but some immediate relief on your taxes as well. If you’ve been making contributions to a 401(k) or an IRA, you can deduct your contributions on your taxes. There are restrictions — if you have a 401k, you can’t deduct your IRA, too; you must make less than $73,000 as a single filer and $136,000 as a joint filer — but, in general, contributing can help reduce your taxable income.
Inflation reduction tax act
Signed in August, this bill offers additional tax benefits for people who have made purchases that will help alleviate climate change. The residential clean energy credit, for example, allows people to subtract 30 percent of the costs of solar heating or electricity, while the electric vehicle tax credit provides up to $7,500 credit for US-assembled electric cars purchased after August 16, 2022.
With a little investigating and/or consultation with a tax professional, you can find deductions and benefits that will make filing taxes a slightly less painful — and a little more profitable — experience. For a complete list of individual deductions, visit irs.gov.
