Originally published December 12, 2020. This archived article may refer to rules, amounts, or deadlines that have changed. Confirm guidance for your filing year before acting.
CLAIMING TAX DEDUCTIONS is a powerful strategy for tax filers. Using appropriate deductions can lower your bill, increase your tax refund or make sure you’re taking advantage of tax benefits offered by your federal and state governments. Want to know how to best use tax deductions? Here’s your guide to 2020 tax deductions. What Is a Tax Deduction? A tax deduction reduces a filer’s taxable income. In other words, a deduction “reduces your income in arriving at taxable income,” says Charlene Wehring, certified public accountant, financial advisor and founder of Wehring Wealth Management in Bellville, Texas. “And then you apply your (tax) bracket.” That’s in contrast to a tax credit, which lowers your tax liability dollar for dollar. Tax deductions typically fall into three main categories:- The standard deduction.
- Itemized deductions.
- Above-the-line deductions.