Understanding Tax Deductions

What Are Tax Deductions?

Tax deductions are expenses that you can subtract from your taxable income, reducing the amount of tax you owe. They are different from tax credits, which directly reduce your tax bill.

Common Tax Deductions

• Standard Deduction: A fixed amount that reduces your taxable income. For 2023, it's $13,850 for single filers and $27,700 for married couples filing jointly.
• Itemized Deductions: Specific expenses you can deduct if they total more than your standard deduction:
  • Medical and dental expenses exceeding 7.5% of your AGI
  • State and local taxes (SALT) up to $10,000
  • Mortgage interest on your primary residence
  • Charitable contributions
  • Casualty and theft losses from federally declared disasters

Business Deductions

If you're self-employed or own a business, you may be eligible for additional deductions:

• Home office expenses
• Business travel and meals
• Equipment and supplies
• Professional services
• Health insurance premiums

Tips for Maximizing Deductions

1. Keep detailed records of all potential deductions
2. Understand the difference between standard and itemized deductions
3. Consider bunching deductions in alternating years
4. Don't overlook smaller deductions that can add up
5. Consult with a tax professional for complex situations