If you’re a high-income earner or if you own a business, you’re likely aware that taxes can be an important part of your financial life. Luckily, there are a number of tax reduction strategies you can use to reduce your taxable income.
For example, you can deduct medical expenses, mortgage interest and property taxes. Plus, you can contribute to health savings accounts and flexible spending accounts. American tax service for expats in Singapore, Portugal and Dubai, UAE is the perfect solution for all your taxes needs.
1. Itemize Your Expenses
Itemizing your expenses is a tax strategy that can help you save more money than you might otherwise. But it requires you to keep track of your receipts and prove that the deductions are legitimate.
Despite the extra work required, it’s often worth it for some people. You might find that your total itemized deductions add up to more than the standard deduction amount for your filing status, which means you’ll pay less taxes.
If you’re not sure whether itemizing is the right route for you, talk to a professional tax preparer. They can walk you through which option will save you the most money.
2. Deduct Your Mortgage Interest
The mortgage interest deduction is one of several homeowner tax deductions that can reduce your taxable income. You can itemize your deductions or claim the standard deduction ($6,100 for single filers and $12,200 for couples in 2013).
Homeowners can deduct interest paid on a home loan to buy, build or improve their main residence or second residence (qualified residence). Other types of loans that may qualify include a home equity loan or line of credit.
The IRS defines a qualified home as a house, condominium, cooperative, mobile home, trailer, motor home, boat or recreational vehicle used for a primary residence. The home mortgage must be secured by a qualified home, and the debt must meet other requirements.
3. Deduct Your Medical Expenses
When it comes to reducing your tax bill, there are a lot of ways to do so. The key is to understand which deductions are allowable and then use them strategically.
A good way to do this is by taking advantage of the medical expense deduction. This deduction allows you to deduct unreimbursed medical expenses that exceed 7.5% of your adjusted gross income (AGI).
These expenses can include insurance premiums, doctor’s fees and payments for medicine, eye examinations, dentistry or hospital visits. You can also deduct certain travel costs related to getting qualified medical care.
4. Deduct Your Property Taxes
Homeowners have long enjoyed the ability to deduct their property taxes from their federal income taxes. However, the 2017 Tax Cuts and Jobs Act capped the amount of this deduction at $10,000.
Fortunately, there are ways to still deduct your property taxes and maximize your savings. Here are eight tax-saving strategies to consider:
Keep a copy of your tax bill from the year you bought the house. This document will show you how much you paid in property taxes, including any special assessments for local benefits that increase the value of your home.
Also, if your mortgage lender maintains an escrow account, you can deduct the amount it pays out to the taxing authority. But only the actual property taxes paid out during that year.
5. Deduct Your Student Loan Interest
Student loans are not the most fun things to pay for, but if you’re in a good position, you can get a lot of bang for your buck this tax season. That’s thanks to a special deduction that can help you deduct up to $2,500 in interest payments on your federal or private loans.
As of 2019, you can claim this tax break regardless of whether you itemize or take the standard deduction. It’s an above-the-line deduction, which means it directly reduces your adjusted gross income.
However, the student loan interest deduction is gradually phased out as your modified adjusted gross income reaches the yearly limit for your filing status. That means if you make more than $85,000 as an individual or $175,000 as a married couple, you won’t qualify for the full amount of this deduction.