The United States federal government levies a personal income tax on the wages of all of its citizens. The federal Tax Code, enforced by the Internal Revenue Service (IRS), enables individuals to subtract a number of expenses, or deductions, from their income when filing taxes. These claimed deductions reduce the amount of income against which an individual or family must calculate the income tax owed.
The mortgage interest deduction allows individuals to deduct interest they have paid on a home mortgage. Filers can deduct the interest paid on mortgages for any type of residence, home equity loans or lines of credit . To claim this deduction, the taxpayer must be the individual liable for the loan's repayment, and he must use the home itself as collateral for the loan or loans. According to the Taxes-In-Depth website, tax filers claim this deduction more than any other one.
Student Loan Interest
The student loan interest deduction lets filers claim the interest they have paid on any outstanding student loan debt. This deduction imposes two conditions: repayments must have begun within the previous five years and the individual must have taken out the loan to pay for expenses accrued while enrolled in a degree-earning program (such as a Bachelor's degree). Individual filers can deduct a maximum of $2,500 a year in interest paid. Even if an individual takes the standardized deduction (rather than itemizing), she can take an additional deduction for her student loan interest.
If a filer's yearly medical expenses totaled more than 7.5 percent of that year's adjusted gross income (AGI), he can deduct the costs of most medical procedures from that year's taxable income. Deductible medical expenses include surgery, office visits, prescription medications and elective procedures such as laser eye surgery. The IRS provides a full list of deductible medical expenses (see Resource 2).
Individual filers who pay college tuition directly out-of-pocket (rather than taking student loans or receiving grants) can claim up to $4000 of that expense. Filers can deduct up to the maximum for each year in which they pay tuition.
Federal tax law enables many organizations, such as churches, theater companies and veteran's groups to register as tax-exempt, nonprofit entities. Individuals who donate money, gifts, services or securities to these organizations can claim the value of those donations as deductions. Individuals who receive items in return for donations (such as PBS tote bags) must subtract the value of that item from the amount donated.
Individuals who moved to take a new job can deduct the cost of moving. The relocation must meet two criteria: the new place of employment must be at least 50 miles away from the filer's previous residence and the filer must have completed 39 weeks of full-time employment during the first year after the move took place.
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