Taxes can be a burden for many. If not properly managed, they can demolish otherwise expendable income and throw a family’s entire financial status into flux. Proper management can make them less stressful, but it doesn’t make them any more pleasant.
Fortunately, the one aspects of “tax time” that people have positive reactions to are tax deductions. When properly managed and catalogued, tax deductions can make tax filing season a lot less difficult to handle.
What are Tax Deductions?
Tax deductions, simply put, reduce the amount of a person or family’s taxable income and liability. The amount earned in tax deductions is reduced from your taxable income, thus lowering the amount you pay in taxes. In short, they save you money.
Tax deductions should not be confused with “tax credits,” which directly reduce money paid in taxes. Deductions do it a more indirect fashion.
There are two different types of tax deductions, and people may only pursue one of the two types. They are standard tax deductions and itemized tax deductions.
Standard deductions are a fixed deduction set by the Internal Revenue Service (IRS) each year. The amount deduced varies based on bracket and taxable income. Bracket types include: Single Taxpayer, Married Filing Jointly and Surviving Spouses, Head Of Household, and Married Filing Separately.
For many, these are the preferred type of deduction. They’re simple and require virtually no receipts, documents, and calculations to juggle. People without large tax responsibilities (those without homes, dependents, etc.) would likely choose standard deductions.
Homeowners and businesses, however, are likely to prefer itemized tax deductions.
Itemized deductions, though they require more document management, can very often yield more savings for home owners and business owners. The following may be counted as itemized deductions:
- Medical and dental costs
- Prescription drugs and health care expenses
- Home office costs
- Gambling losses
- State and local income taxes or sales taxes
- Personal property taxes (including vehicle registration fees)
- Contributions to charity
- Losses due to theft or casualty
- Work-related expenses
- Property taxes
- Mortgage interest
- Union fees
Military families are more than likely to want to choose itemized deductions. Anyone choosing to pursue itemized deductions should always hold onto receipts and documents that prove the deductions’ legitimacy. The government may choose to do an audit, which requires meticulous record-keeping on the behalf of the taxed.
Benefits for Military Families
For serving our country, military members and their families earn a number of special tax-related benefits from the government, many of which deal with tax deductions.
If a family has had to relocate due to military obligations, the family can deduct “reasonable unreimbursed expenses” they incurred in the move. Likewise, if a military family had to relocate for a job, travel fees, resume preparation fees, outplacement agency fees, and related moving fees may also be deducted under the same criteria.
Other related benefits for a military member and their spouse include:
- Spouse doing remote tax filing for her spouse
- Deadline extensions of at least 180 days for paying taxes, filing returns, refund claims, and contributing to IRAs
- Income exempt from federal taxes during any month where the military member serves in a combat zone