Tax deductions reduce the amount of income tax that you have to pay the Internal Revenue Service. Some taxpayers can reduce the amount of taxes they pay by itemizing deductions. If you qualify to take it, you can claim the standard deduction that varies from year to year. Tax-deductible expenses fall within basic categories such as housing, medical, self-employment, charitable contributions and casualty losses. You must keep receipts and documentation for all the deductions you claim.
If you work for yourself, keep receipts for every business-related purchase you make. Records of trips you take and the mileage used should be kept in a ledger or tracked through records you keep. As a subcontractor or self-employed worker, you will have extra taxes to pay, such as Social Security and self-employment taxes, but you can claim everything from the use of a home office to business meals, association dues and office supplies. Deductions also are available if you work for someone else but incur unreimbursed expenses related to the job, such as tools or uniforms. These expenses are deductible to the extent they exceed 2 percent of your adjusted gross income.
Perhaps one of the biggest deductions taxpayers enjoy in the United States are those related to homeownership. Prepaid interest, called "points," is tax-deductible. As a homeowner, you also are allowed to reduce the amount of your tax burden by the amount of interest you paid on your mortgage as well as the mortgage insurance premiums you paid. The residential mortgage interest deduction also applies for a second home.
Medical Expense Deductions
A formula is used to determine whether you can deduct medical expenses. The formula is subject to change occasionally. As of 2014, you can deduct the amount of total medical expenses that exceed 10 percent of your adjusted gross income. That is reduced to 7.5 percent if you or your spouse are 65 or older, a temporary reduction that was slated to last through 2016. Medical expenses include doctor and dentist bills, psychiatrists and psychologists, hospital, nursing home and prescription costs as well as some alternative medicine costs. You also can deduct the cost of health insurance if you meet the criteria.
Allowable deductions include any losses to property that resulted from a natural disaster that weren't covered by your insurance. To determine the amount of the deduction, you must subtract $100 from the loss estimated. Reduce the remaining figure by 10 percent of your adjusted gross income; if the remaining amount is positive, then that's your deduction. Child care and adoption costs as well as educator expenses are deductible. Tax preparation fees are deductible if they exceed 2 percent of your adjusted gross income. Other deductions that could save you additional money in taxes include state income tax paid the previous year, money donated to charity and costs associated with a job search if you were unemployed part of the year. You can deduct college tuition and fees if your adjusted gross income is less than $65,000. The interest on a student loan is deductible if you've started paying it back.