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- A tax deduction lowers your taxable income and reduces your tax liability.
- If you itemize deductions, charitable, business, and medical expense deductions may reduce your tax bill.
- If you need more time to file your taxes, you can file for a tax extension — which is not a payment extension.
By lowering your taxable income and reducing your tax liability, tax deductions can be huge money savers. It’s not very complicated: You subtract the amount of the tax deduction from your income, lowering the amount of income the IRS can tax you on. The lower your taxable income, the lower your tax bill.
Note that to take individual deductions like the ones listed below, you must itemize your deductions rather than taking the standard deduction. If you are filing your taxes with several deductions, make sure you have all of the appropriate paperwork and keep accurate records.
1. Charitable deductions
If you itemize your deductions, you can deduct the value of qualified charitable donations you made in 2022. Whether they are in cash or property, such as clothes or a car, you can deduct the value from your taxable income. Per the IRS, you can generally deduct up to 60% of your adjusted gross income.
2. Medical expenses deduction
If you accumulated sizable medical bills in 2022, you may be able to find some relief through your tax return. In general, you can deduct unreimbursed medical expenses that are more than 7.5% of your adjusted gross income for the tax year. Keep in mind that you have to itemize your deductions to write off those expenses on your tax return.
3. Business deductions
If you are self-employed, there are several deductions that you may be able to claim on your tax return, including travel expenses, association fees, and the home office deduction.
If you use part of your home regularly and exclusively for business-related activity, you can claim the home office deduction. You can write off associated rent, utilities, repairs, internet, etc. But if you are one of the millions of people who work remotely, you will not be able to claim this deduction, since it’s for self-employed people only.
You can file for a tax extension if you need one
If you don’t have all of the necessary paperwork or an emergency comes up, you might need more time to file your taxes. Filing for a tax extension gives you an extra six months to file your income taxes. You will have until October 16, 2023 to file a tax return.
The tax extension may give you more time to file, but it doesn’t give you an extension if you owe money to the IRS.If you owe money, you will need to make a payment by the filing deadline (April 18, 2023) in order to avoid interest and penalties.
You can file for an extension by completing Form 4868. You can file it electronically or mail it in. Remember: A tax extension does not work as a payment extension for any tax payment you might owe. Even if you get more time to do the paperwork, the April payment deadline remains the same.