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Part of being an American is looking toward Tax Day with either dread or anticipation. Will you have to cut a check to Uncle Sam, or will you get a plump refund? Tax deductions can tip the scales — a lot — meaning you’ll end up sending less money to the IRS.
Read on to understand which common tax deductions you could claim when you file your tax return for 2021. Note that we use 2021 because that is the tax year for which you will be filing for by the April 18 deadline. For the past two years, the tax deadline was extended because of the pandemic but this year it is closer to the traditional April 15 date.
What Is a Tax Deduction?
Tax deductions, also known as tax write-offs, lower your taxable income so you’ll pay less overall. You can either go with the standard deduction, which is a predetermined amount that is subtracted from your income, or itemized deductions, which take into account your particular expenses such as charitable donations and some health care costs.
However, your itemized deductions have to exceed your standard deduction or it is not smart to itemize. Since the federal government changed the tax rules in 2017 to increase the standard deduction, only about 10% of mostly wealthy Americans itemize deductions, according to the Urban -Brookings Tax Policy Center.
The standard deduction amounts for tax year 2021 are:
- Single filers: $12,550
- Married filing jointly and surviving spouses: $25,100
- Married filing separately: $12,550
- Head of household: $18,800
Tax deductions are different from tax credits. A tax deduction decreases your taxable income, whereas a tax credit lowers the amount of taxes you owe the IRS.
Calculating Your Adjusted Gross Income
Deductions are typically calculated from something called your adjusted gross income, or AGI.
Do you know how much you make each year? What about the amount you contribute to retirement? The IRS uses this information and more to calculate your adjusted gross income (AGI),…
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