CLAIMING TAX DEDUCTIONS is a powerful strategy for tax filers. Using appropriate deductions can lower your bill, increase your tax refund or make sure you’re taking advantage of tax benefits offered by your federal and state governments.
Want to know how to best use tax deductions? Here’s your guide to 2020 tax deductions.
What Is a Tax Deduction?
A tax deduction reduces a filer’s taxable income. In other words, a deduction “reduces your income in arriving at taxable income,” says Charlene Wehring, certified public accountant, financial advisor and founder of Wehring Wealth Management in Bellville, Texas. “And then you apply your (tax) bracket.” That’s in contrast to a tax credit, which lowers your tax liability dollar for dollar. Tax deductions typically fall into three main categories:
- The standard deduction.
- Itemized deductions.
- Above-the-line deductions.
A filer must choose between taking the standard deduction or itemizing deductions but can use relevant above-the-line deductions regardless of whether they itemize.
The Standard Deduction
The standard deduction is a set amount of money on which you aren’t taxed. It’s fixed for each tax year and depends on your filing status, age, spouse’s age and whether you or your spouse are blind.