The Best Tax Deductions
We all know it’s coming…tax season…ugh. And while there’s no way to avoid paying taxes, the amount of money you pay in taxes can be adjusted through credits and deductions.
The experts at Maggi Tax Advisory and Financial weigh in on the best tax deductions that could shrink your tax tab.
The Mortgage Interest Deduction
Own a home? Take advantage of its benefits! If you have a mortgage and itemize on your tax return, you are eligible to deduct the interest you pay on a home loan up to $750,000. For mortgages that were placed before December 15, 2017, the threshold increases to $1 million.
This deduction is particularly valuable during the early stages of your mortgage-payoff period when most of your payments go toward your loan’s interest rather than principle.
The SALT Deduction
Did you know that the state and local taxes you pay (property, sales, and state income taxes) can be deducted from your income on the federal level? This is known as the SALT deduction.
This deduction is worth up to $10,000 and a sizeable write-off if you itemize and pay enough in state income and property taxes!
The Earned Income Tax Credit
The Earned Income Tax Credit (EITC) is a tax credit designed for low-income households. What makes this deduction so valuable is that it’s fully refundable. Therefore, if it reduces your tax liability to below zero, the IRS will pay you the difference.
Eligibility for the EITC is based on your income and the number of qualifying dependents you have in your household. Its maximum value changes from year to year, with 2020 having a value up to $6,660 and 2021 at $6,728.
The Child Tax Credit
The great thing about the Child Tax Credit is that even though you have a high income, you can still be eligible. In 2020 and 2021, this deduction is worth up to $2,000 per child under the age of 17 who resides in your household. Of that $2,000, up to $1,400 is refundable. This means that if the credit knocks your tax liability to less than zero, you will still get paid something.
The cap on the Child Tax Credit is $200,000 for single tax filers and $400,000 for married couples who file jointly.
Traditional Retirement Plan Contributions
By funding a traditional IRA or 401(k) plan, your contribution will exempt a portion of your income from taxes. For both 2020 and 2021, IRA contributions max out at $6,000 for employees under the age of 50 and $7,000 for individuals 50 years and older. For 401(k)s, the limit for 2020 and 2021 is $19,500 for employees under the age of 50 and $26,000 for individuals 50 years and older.
Like traditional IRA and 401(k) contributions, health savings account (HSA) contributions are also tax-free. To qualify, you must be enrolled in a high-deductible health insurance plan, an individual deductible of at least $1,400, or a family deductible of at least $2,800.
In 2020, the HSA savings limits are $3,550 if you’re saving as an individual and $7,100 as a family. In 2021, the limit goes up to $3,600 for an individual and $7,200 for a family. Individuals 55 years and older have an IRA catch-up of $1,000 on top of the limits listed above.
Save Money with Maggi Tax Advisory & Financial Group
No one enjoys paying taxes, but the good news is that there are plenty of opportunities to lower that burden and the experts at Maggi Tax Advisory & Financial Group can help! To learn more about our tax preparation and financial services, please call our Hillsborough office at (813) 850-0131 and our Pinellas/Pasco office at (727) 493-7295.