Individuals and businesses can reduce their tax liability by claiming tax deductions on their return. If you are doing last-minute return preparation, you can consider claiming these tax deductions:
Individual Retirement Arrangements (IRAs)
Taxpayers may deduct some or all of their contributions to a traditional IRA, or they may be eligible for a tax credit equal to the percentage of their contribution. To figure out the allowable deduction, taxpayers may use the worksheets in Form 1040 Instructions, Form 1040A Instructions or in Publication 590-A.
However, contributions to a Roth IRA are not deductible, but qualified distributions or distributions that are a return of contributions are not subject to tax. Taxpayers do not report Roth IRA contributions on their tax return.
Contributions to qualified charities are deductible. To find out if the charity you donated to is a qualified charity, see the IRS Exempt Organizations Select Check. To determine if your charitable deductions are deductible, you may use the IRS interactive interview ‘Can I Deduct My Charitable Contributions’.
Home Office Deduction
Taxpayers that use a part of their home exclusively and regularly for carrying out business activity may be eligible for the home office deduction. If you qualify, you may deduct expenses such as mortgage interest, repairs, utilities, insurance, and depreciation for the office area of your house. This deduction is available for homeowners and renters. To make calculating the deduction simpler, the IRS created a simplified option.
Generally, any gift is taxable. However, there are certain exceptions to this rule. These are:
- Gifts that are not more than the annual exclusion for the calendar year are excluded. The annual exclusion for 2015 and 2016 is $14,000.
- Tuition or medical expenses you pay for someone (the educational and medical exclusions).
- Gifts to your spouse.
- Gifts to a political organization for its use.
Certain business expenses are deductible. In order to be deductible, an expense needs to be both ordinary and necessary to a business, but not indispensable. Capital expenses and personal expenses are not deductible business expenses.
When claiming deductions, it is important to keep all the receipts of the expenses deducted.