Your top goal when paying taxes should be having to pay the IRS as little as possible. And to be able to do that, you will need to use all the tax deductions you can.
As a fast primer, a tax deduction can exempt a portion of what you earned from taxes. Your actual tax savings come from the tax bracket that you fall into, which is based on your salary.
Say you are able to claim a $500 tax deduction, and you are in the 22% tax bracket. That means you will not pay taxes on $500 of your income and you are saving yourself about $110 as a result. Tax deductions are not the same as tax credits, which pay 100 percent reduction of your tax liability.
With that out of the way, here are 4 tax deductions you might not know about.
1. Medical expenses
Some people use a lot of their money on medical bills — even people that have decent health insurance. For the tax year of 2021, which is the tax year that you are submitting a return for in 2022, you are allowed to deduct any medical expenses that are unreimbursed and happen to go over 7.5% of what your adjusted gross income is. What this means is if your AGI is $50,000 and you have to pay $5,000 in medical bills, you are able to deduct $1,250 of that.
2. Educator expenses
It is common for some teachers to spend their own personal money on materials for the classroom. As an educator, you are allowed to have a deduction of up to $250 in supplies for the classroom. And the best part of this? This is a deduction you are able to take even if you do not itemize it on your tax return.
3. Self-employment taxes
Though there are some benefits to being self-employed, one drawback is that you have to pay 15.3% of your income towards Medicare and Social Security taxes. Salaried workers only have to pay half that amount because they split the 15.3% cost with their employers. But on the bright side, you are able to deduct half of your Medicare tax and Social Security bill on your tax return, so you can effectively get some of that money back.
4. Donated goods
You might be aware that if you were to give money to charity, you could deduct your contributions on your taxes. But you could also claim a deduction for any donated goods. All you will need to do is keep receipts that document your donations and deduct the what fair market value is for those goods — not their original value. If you were to donate a used furniture piece that you purchased for $800, that piece might only be worth $300 now because of its condition and age– and so $300 is the write-off you would take.