Everyone loves a tax deduction: Tax deductions can encourage you to save for your future, give to charity, borrow for college, or even buy a home. While the amount of potential deductions is extremely vast (and depends on your individual situation), most people can take advantage of some common ones.
It's never too early to think about your golden years. Traditional investment retirement arrangements (IRAs) save for retirement and offer tax breaks. As of 2012, the IRS allows a maximum, tax-deductible contribution of $5,000 yearly. You can contribute an extra $1,000 per year if you are over age 50. Your taxable wages, salary or commissions must be equal to or more than your IRA deduction. And IRA interest builds tax-free while you save.
Home Mortgage Interest
Believe it or not, debt can have an upside. The mortgage interest deduction (MID) lets you deduct interest on loans secured by your home. Interest on first and second mortgages, home improvement loans and credit lines all qualify. If you have a second home, you may be able to deduct interest on loans you have on it as well. As of 2012, there is still no income cap for qualifying for MID.
Paying back a student loan? You may be able to deduct its interest. To qualify, you must either file single, or if you file with your spouse, you cannot be claimed as a dependent on another person's tax return. Your adjusted gross income must be less than $75,000 if you're single, and if you're married, your combined income cannot exceed $150,000. A max of $2,500 applies to this smart deduction.
Donating to an IRS-qualified charity can get you a tax break. A 501(c) corporation, such as a non-profit literary, science, art, or religious organization, gets the nod as a qualified charity. If you donate property, like your old car, you can deduct its fair market value. If you donate $250 or more, keep written records to prove it. If you receive something for a donation, like a sporting event ticket, you must subtract its value from your deduction.
- Internal Revenue Service: Individual Retirement Arrangements
- Internal Revenue Service: Home Mortgage Interest
- Internal Revenue Service: Student Loan Interest Deduction
- Internal Revenue Service: Eight Tips for Deducting Charitable Contributions
- www.houselogic.com: Obama Budget Plan Curbs Interest Deduction for Some
- Westfield Bank: Learn About IRAs.
Maggie Lourdes is a full-time attorney in southeast Michigan. She teaches law at Cleary University in Ann Arbor and online for National University in San Diego. Her writing has been featured in "Realtor Magazine," the N.Y. State Bar's "Health Law Journal," "Oakland County Legal News," "Michigan Probate & Estate Planning Journal," "Eye Spy Magazine" and "Surplus Today" magazine.