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CandleFocus Glossary Editor
Tax Deduction - An Overview
A tax deduction is a form of relief that reduces a taxpayer’s total taxable income. Tax deductions are subtracted from your gross income, thus lowering your taxable income. A taxpayer essentially pays less tax as a result. The lowest amount of tax you can owe is determined by the standard deduction option or the itemized deduction option.
The Tax Cuts and Jobs Act (TCJA) of 2017 nearly doubled the standard deduction, improved different tax deductions, and limited many itemized deductions.
Standard Deduction vs. Itemized Deductions
The standard deduction is a set amount that can be used to reduce the total taxable income of a taxpayer. The amount will vary depending on the person’s filing status such as married filing joint, head of household, single, or married filing separately. The standard deduction for the tax year 2019 is $12,200 for single taxpayers, $24,400 for married filing jointly, and $12,400 for married filing separately. There is no need to submit any evidence with standard deductions.
Itemized deductions are a list of expenses that the taxpayer can deduct and reduce taxable income. Taxpayers need to submit evidence to support the list of expenses and avail this option. tax returns of the former five years must hold all the records. Popular itemized deductions are expenses related to state and local income taxes, mortgage interest, medical expenses, charity contributions, qualifying home improvements and more.
Deductions As Per the Tax Cuts and Jobs Act
The TCJA of 2017 changed the tax deductions and most notably, nearly doubled the standard deduction. The Act also raised the limits of certain itemized deductions. For instance, the deductive limit on the mortgage interest deduction was raised from $1,000,000 on acquisition debt to $1,000,000 on acquisition debt plus $100,000 on home equity debt.
Furthermore, the TCJA also limited many itemized deductions such as state and local tax (SALT) deductions, the mortgage interest deduction, and the medical expense deduction. The SALT deductions were limited to $10,000, and the threshold for medical expense deductions was increased to 7.5% from previously 10% of income.
Conclusion
Tax deductions are a great way for taxpayers to reduce their taxable income. Taxpayers can choose between standard deductions or itemized deductions on their tax returns. The TCJA of 2017 altered the tax deductions by nearly doubling the standard deduction and improving certain itemized deductions while limiting others. No matter the deductions chosen, it is important to maintain records to prove those expenses.
A tax deduction is a form of relief that reduces a taxpayer’s total taxable income. Tax deductions are subtracted from your gross income, thus lowering your taxable income. A taxpayer essentially pays less tax as a result. The lowest amount of tax you can owe is determined by the standard deduction option or the itemized deduction option.
The Tax Cuts and Jobs Act (TCJA) of 2017 nearly doubled the standard deduction, improved different tax deductions, and limited many itemized deductions.
Standard Deduction vs. Itemized Deductions
The standard deduction is a set amount that can be used to reduce the total taxable income of a taxpayer. The amount will vary depending on the person’s filing status such as married filing joint, head of household, single, or married filing separately. The standard deduction for the tax year 2019 is $12,200 for single taxpayers, $24,400 for married filing jointly, and $12,400 for married filing separately. There is no need to submit any evidence with standard deductions.
Itemized deductions are a list of expenses that the taxpayer can deduct and reduce taxable income. Taxpayers need to submit evidence to support the list of expenses and avail this option. tax returns of the former five years must hold all the records. Popular itemized deductions are expenses related to state and local income taxes, mortgage interest, medical expenses, charity contributions, qualifying home improvements and more.
Deductions As Per the Tax Cuts and Jobs Act
The TCJA of 2017 changed the tax deductions and most notably, nearly doubled the standard deduction. The Act also raised the limits of certain itemized deductions. For instance, the deductive limit on the mortgage interest deduction was raised from $1,000,000 on acquisition debt to $1,000,000 on acquisition debt plus $100,000 on home equity debt.
Furthermore, the TCJA also limited many itemized deductions such as state and local tax (SALT) deductions, the mortgage interest deduction, and the medical expense deduction. The SALT deductions were limited to $10,000, and the threshold for medical expense deductions was increased to 7.5% from previously 10% of income.
Conclusion
Tax deductions are a great way for taxpayers to reduce their taxable income. Taxpayers can choose between standard deductions or itemized deductions on their tax returns. The TCJA of 2017 altered the tax deductions by nearly doubling the standard deduction and improving certain itemized deductions while limiting others. No matter the deductions chosen, it is important to maintain records to prove those expenses.