With tax season in full swing and the April 18 filing deadline rapidly approaching, many Americans are once again wondering whether they should take a standard deduction or consider itemizing their deduction. If you’re considering itemizing your deductions and up against the clock to get your taxes filed, here’s a guide with last-minute deductions you might consider.
A financial advisor could help you with tax planning, as well as other financial planning needs.
Tax Deductions Definition
The U.S. has a progressive income tax system. This means that as your income goes up, you are taxed at a higher percentage. You aren’t taxed on your entire income, though, as some money is deductible from your total taxable income. Most people use what is known as the standard deduction, meaning you deduct a dollar figure determined by the federal government. For tax year 2023, the standard deduction is $13,850 (up from $12,950 in 2022) for single filers and those married but filing separately. It is $27,700 (up from $25,900 in 2022) for joint filers and $20,800 (up from $19,400 in 2022) for heads of household.
Some people, though, choose to itemize their deductions. This takes more time, but if you think you can deduct more than the standard deduction it could save you money. Examples of common itemized deductions include:
- Charitable donations
- Business expenses
- Some medical expenses
- Mortgage interest
- Tax-deferred retirement contributions
4 Last Minute Tax Deductions to Consider
If you’re currently preparing your tax returns and still aren’t sure if you should take the standard deduction or go through and itemize, here are some last-minute deductions you may be able to take advantage of that you may not have thought of. These deductions could also push you towards itemizing as the most financially sound course of action:
- More retirement contributions. As noted above, contributions to tax-deferred retirement accounts such as a traditional IRA can be deducted from your taxable income. What you may not realize, though, is that you can still make contributions that count towards your 2023 tax year until April 15, 2024 (for tax year 2022, contributions were allowed until April 18, 2023). Let’s say, for instance, that you put $3,000 into your IRA before tax day in 2023. You still have $3,000 available for contributions before you meet the $6,000 IRA limit. If you put that money in before the tax day, you can deduct it from your 2022 taxable income total. This serves two functions: lowering your tax bill right now and building your nest egg for when you retire.
- Side hustle expenses. Here’s one you may not have thought of: if you’ve found a way to monetize your hobby, you can deduct expenses related to it from your taxable income. Let’s say you like to knit and have started selling your knitted wares online. You can possibly deduct expenses related to that – like knitting needles, patterns and yarn – from your income.
- Tax prep expenses. If you pay for tax preparation – like buying a premium version of a service like TurboTax – you can deduct that as well. This likely won’t be a massive change to your taxable income, but if you’re itemizing, every dollar counts.
- Student loan interest. You are probably used to complaining about your student loan debt, but here is a way it can help you. You can deduct up to $2,500 of your student loan interest, so if you’re choosing to itemize and have student loan debt, don’t forget to include this.
Itemizing your tax deductions is an option for getting your tax bill down if you think you can end up taking more than the standard deduction. There are some deductions that are well known, but if you’re choosing to itemize your deductions, don’t lose out on some of the deductions you might not know about.
Tax Planning Tips
- A financial advisor can help you get the best deal on your taxes. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
- Get an estimate of your tax bill using SmartAsset’s free tax calculator. This way you can plan ahead and set a budget based on your estimated payment.
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