9 HUGE Tax Write Offs for Individuals (EVERYONE can use these)

okay let's talk about some of my most overlooked tax write-offs for individuals or everyone in 2022 because after preparing tax returns for clients for many many years i've usually been able to find one to two qualified expenses that my clients had no idea they could write off and that's actually very common because in fact every year more than 2 million taxpayers overpaid their income taxes and this means you could literally be leaving free money on the table that you're actually entitled to simply because you're not fully leveraging the tax system but if you take advantage of the tax write-offs for individual taxpayers from this video then it will surely help you to reduce your taxable income thus in turn helping you reduce your tax burden so in this video i will cover exactly how the tax system works we'll take a deep dive and a deep look at the standard deduction for 2022 and i'll reveal my most overlooked tax write-offs for individuals and after you finish this video i want to hear from you okay tell me in the comment section below if you learned about any new tax deductions that you didn't know about before stay tuned [Music] hey there i'm sean with life accounting the accounting company that helps you save on taxes and build more wealth and if you don't mind lending a helping hand please hit the like button below to help this video reach more people like yourself alright let's go ahead and dive in with the first part of this video number one how the u.s tax system works now to explain this very easily we're going to use a fictional character throughout this video which we're going to name james and james is a fictional corporate executive that earns 100 000 a year and is currently single so james's goal is to make smart investments leverage the tax system so that he can eventually retire comfortably okay so let's take a look at james tax situation we're going to put up on the screen to plan federal tax brackets for single filers in 2022 now can you guess which tax bracket james falls into [Music] if you said none of the above then you're correct you see even though james 100 000 salary fits into the 24 tax bracket that is not his effective tax rate and he won't pay 24 000 in federal taxes because being in a tax bracket doesn't mean that you will pay the federal income tax rate on everything you make because the united states has a progressive tax system which means that people with higher taxable incomes are subject to higher rates and people with lower taxable incomes are subject to lower federal tax rates this is what makes the tax system fair so before the standard deduction james federal taxes would look more like this his total taxes paid would be 17 781 dollars which means his actual effective tax rate will be 17.78 and you can pause the video here if you really want to take some time to understand the math and these calculations are before any tax write-offs or any tax deductions which brings me to number two the standard deduction so here's the thing every individual is entitled to what is called a standard deduction which is a specific amount that the irs issues every year that is given to taxpayers it's a given deduction and the amount that you receive depends on your fouling status whether you're single married etc so for example if we go back to james remember he was a single filer which means that his standard deduction would be twelve thousand nine hundred and fifty dollars for 2022 thus reducing his taxable income from one hundred thousand dollars to eighty seven thousand fifty dollars which in turn would lower his effective tax rate in the amount that he pays to the irs however if james got married later this year he could get a standard deduction up to 25 900 for 2022 which could lower his effective tax rate even more but remember his spouse actually may increase his taxable income as well with her own income and wages so it could end up being a wash or a different situation altogether and by the way if you are newly engaged or married then make sure you check out my video on how marriage affects your taxes right after you finish this video which i will link to in the description below okay i'll go ahead and put on the screen right now the standard deduction amounts for the 2022 and 2021 tax year okay now listen this is very important you can choose to take the standard deduction or use schedule a of the 1040 form to itemize your deductions in general you would only want to itemize your deductions if the amount of the individual deductions exceed the standard deduction amount that you're given okay now that you understand that let's move into my top tax write-offs for individuals starting with number one charitable donations and donor advisor funds okay now most people know that when you itemize you can deduct any cash or non-cash contributions you make to a qualified nonprofit organization a cash contribution would be stuff like the money you give to your church or helping someone raise money for charity on something like gofundme.com although it is important to note that donations made to a personal gofundme benefit are considered to be gifts and are not likely to be taxable on the other hand non-cash contributions will be stuff like donating your used clothes or donating your old furniture or donating equipment like your laptops or your old cameras or even donating paper assets like stocks or crypto or hard assets like your land and vehicles now the irs requires that you provide a qualified appraisal of the item or group of items when you make a non-cash contribution worth more than 5 000 and for contributions below that amount you just need to make sure you can substantiate the donation with something like a receipt or a third-party assessment to explain this deduction further let's look at an example using james okay so remember james taxable income after the standard deduction was 87 050 which brings his estimated tax to fourteen thousand seven hundred and seventy four dollars which is an effective tax rate of sixteen point ninety seven percent but to lower his taxable income he's going to donate twenty thousand dollars with a mixture of different cash and non-cash donations well in this scenario james taxable income will go from eighty seven thousand fifty dollars to eighty thousand dollars and remember that's because he's no longer getting the twelve thousand nine hundred and fifty dollar standard deduction for single filers so when james makes this donation it rains his tax burden down for a total tax savings of 1551 dollars now as a side note the cares act allows individuals who do not itemize thus they're taking the standard deduction to deduct up to three hundred dollars and qualify contributions as well okay now here's an individual tax strategy using donations that many people don't take advantage of which is called a donor advisor fund or daf so in most cases when you donate to charity the transaction and the tax deduction occurs instantly but a donor advisor fund or daf is like a charitable investment account for the sole purpose of supporting charitable organizations that you care about so when you contribute cash to a daf then those contributions are eligible for an immediate tax deduction and those funds can be invested for tax-free growth then at any point in time you can donate funds to irs qualified public nonprofit organizations so the flow kind of looks like this okay you contribute to a charitable fund then you get an immediate tax deduction that you can take right now and then those funds can grow if you decide to invest it in something like the stock market and then you can donate to the organization that you choose so with this you don't have the pressure of deciding okay what charity you want to donate to right now in your donation can be much larger as your investment appreciates now if you're interested in doing something like this you can set up a dfa with a fund like fidelity to pursue this strategy all right moving along to individual tax write-off number two vehicle sale and property taxes now of course you pay sales tax on a car when you buy it and some states like georgia continue to make you pay avalon taxes on your car each year now thankfully you can deduct these types of sale tax payments on schedule a as an itemized deduction and in general you can choose between two state tax methods which is either number one taking a deduction for sales taxes or number two taking a deduction for your state and local income taxes now of course you want to pick the method that gives you the highest tax deduction and these taxes also apply to assets like rvs or boats so make sure you check your registration paperwork to see if you're paying any property taxes on those too now you need to know there is a limit of ten thousand dollars for state and local tax deductions which includes all property sales state and local taxes now if you own a business you can take even more vehicle tax deductions and i have a video called how to write off your dream car that breaks it all down which i'll link in the description below and you can watch after you finish this one okay moving on to tax write-off number three for individuals i have your home so one great benefit of owning a home is that it can give you some major tax write-offs each year including points paid to buy down your interest rate on a new home loan now one of the biggest home costs you can deduct will be your mortgage interest payments here's how it works so you can deduct mortgage interest payments on the first 1 million dollars of mortgage debt you have if you bought your house before december 15 2017 or you can deduct mortgage interest payments on the first 750 000 if you bought a house after december 15 2017. for example if you got a 900 000 mortgage loan to buy a house in 2017 and you paid 30 000 in interest in 2022 then you will likely be able to write off the total of 30 000 in interest on the other hand if you got a 900 000 mortgage loan to buy a house in 2021 and you paid 30 000 in interest then you will likely have a smaller tax deduction now in addition to mortgage interest you can also deduct other home expenses such as interest on a home equity loan state property taxes mortgage interest or pmi and prepayment penalties now while we're on the subject it's also important to note the home expenses that you cannot deduct as an individual which would be stuff like homeowner insurance principal payments title insurance settlement costs deposits down payments or earnest money and if you own a home then you can keep the tax deductions or tax credits rolling with number four the residential energy tax credit now of course the main benefit of solar energy is to reduce your utility bill along with playing your part in helping the world produce clean energy so with this you get a federal tax credit up to 26 of the installation costs for solar energy systems including solar water heaters and solar panels now this is a limited opportunity as the tax credit dwindles down to 22 for 2023 and expires in 2024. also this is a tax credit that is non-refundable meaning that you can't get savings in the form of a tax refund okay let's keep going with tax write-off number five education and educator expenses so if you take out a loan for qualified education expenses then you can deduct the student loan interest qualified education expenses will be things such as tuition room and board books and other necessary expenses such as transportation this also applies if you took out a loan for a dependent or you are obligated to repay the loan for any other reason in addition to the education expenses let's talk about the educator expense deduction which allows teachers or eligible educators to deduct 250 spent on classroom supplies okay up next i have number six invest into a 401k or ira plan many companies offer some kind of employer sponsored retirement plan like a 401k but if they don't that's okay because you can set up your own ira plan as well now if you don't know about this yet just understand that these are simple retirement accounts that allow you to take your pre-tax income and invest it into things such as stocks or real estate now 401ks and iras are very similar except for the fact that 401k plans are typically provided by a company who also contributes to your retirement account while an ira is simply an account that you set up on your own now here's how these accounts can help you avoid taxes every dollar you invest into a traditional 401k or an ira can be deducted from your income and remember your tax is based on your income so by taking this deduction you are lowering your income and you are paying less taxes or receiving more money back on your tax refund not only that but you may also be able to lower your income to a point where you're in a lower tax bracket which gives you even more tax savings now the irs does have a limit on the amount that you are allowed to contribute to these accounts for example if you are investing into a traditional ira or 401k the contribution limit for 2022 is 6 000 per year or 7 000 if you are above the age of 50. so if you don't mind setting aside some money later for retirement to help you save on taxes then definitely consider setting up some type of retirement account all right tax write-off number seven are medical expenses you may be able to deduct qualified medical expenses that are more than 7.5 percent of your adjusted gross income or agi for example if your adjusted gross income is 50 000 anything beyond seven hundred and fifty dollars could be deductible so if you had ten thousand dollars in qualified medical expenses you could deduct six thousand two hundred and fifty dollars the types of medical expenses that are deductible are payments to doctors dentists surgeons chiropractors psychologists and other medical practitioners you can also deduct hospital and nursing care costs you can deduct weight loss programs for doctor diagnosed diseases you can deduct prescription drugs as well as insurance premiums for medical care or long-term care insurance and a lot more okay you can see a complete list by looking for irs publication 502. now the awesome thing here is that you can combine medical expenses with our next tax deduction which is number eight the health savings account also known as the hsa a health savings account is literally what it sounds like it is a savings account for your future health related expenses health savings accounts are tax exempt accounts that you can use to pay for the medical expenses that we talked about so think about stuff like prescriptions deductibles etc amazon even has an entire catalog of different products and services you can buy using hsa and at some point listen you're going to need to pay for something medically related and why not use your money tax-free because the money you contribute to a hsa is tax deductible meaning that the money you put into the account will actually lower your taxable income which ultimately lowers the amount of taxes you pay at the end of the year the contribution limits for 2022 are thousand six hundred and fifty dollars for individuals with high deductible health coverage or seven thousand three hundred dollars for families with high deductible health insurance coverage okay now these are some of the most overlooked tax deductions for many people but i've also got to mention briefly another tax credit which is number nine child tax credits and dependent care tax credits now i'd be surprised if you haven't heard about this by now but you can actually get a tax credit up to thirty 3 600 per child for the 2021 tax year in addition parents can get a child independent care tax credit for children that they are unable to care for themselves all right so there you have it nine huge tax write-offs for individuals now you should know the biggest and best tax write-offs are usually reserved for investors or business owners so coming up next we have two more videos to talk about how to start a business or a side hustle so make sure you check those out if you haven't already and i'll see you over there

Channel: LYFE Accounting

Views: 42,647

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Id: NoEpYh5GxX8

Length: 17min 21sec (1041 seconds)

Published: Thu Feb 17 2022