Tax season is upon us, prompting a quest for avenues to trim taxable income and bolster savings. Amidst the multitude of tax deductions whispered about, the question lingers: Are they genuinely advantageous? Here’s an exploration of 13 deductions that might not offer the anticipated benefits and why you might reconsider embracing them.
Mortgage Interest Deduction
The allure of deducting mortgage interest payments has dimmed post the Tax Cuts and Jobs Act. With reduced deductible amounts on mortgage debt and an elevated standard deduction, opting for the standard deduction might be more prudent unless sizeable mortgage debt or extensive deductions are at play.
State And Local Tax Deductions
Impacted by the same Act, the state and local tax (SALT) deduction now faces a cap of $10,000 yearly, regardless of filing status. High-tax state residents or those burdened with substantial property taxes might find their SALT payments undeductible. Moreover, choosing the SALT deduction precludes availing oneself of the foreign tax credit, potentially more advantageous for individuals with foreign-sourced income.
Medical Expense Deduction
While allowing deductions for unreimbursed medical expenses, this deduction comes with a high threshold—only expenses exceeding 7.5% of your adjusted gross income (AGI) qualify. For those without substantial medical bills or a lower income, claiming this deduction might be unfeasible.
Charitable Contribution Deduction
Donating to eligible charities allows for deductions but necessitates itemising, which may not be worthwhile if your total deductions fall below the standard deduction. Income-based limits further constrain deduction amounts, posing another challenge.
Home Office Deduction
Deducting expenses for a home office demands meeting stringent criteria, including exclusive and regular business use of the space, deterring many from eligibility—especially employees unable to prove employer-required home office use.
Student Loan Interest Deduction
With income thresholds determining eligibility, this deduction caps at $2,500 for qualified student loan interest. Yet, phased-out eligibility and its above-the-line nature might not significantly impact taxable income.
Moving Expense Deduction
Reserved for armed forces’ members facing permanent change of station, this deduction eludes civilians moving for work-related reasons.
Alimony Payment Deduction
While allowing deductions for alimony payments made before 2019, this deduction dissipated post-2018 modifications, now necessitating recipients to report payments as income.
Casualty And Theft Loss Deduction
Limited to losses within federally declared disaster areas, this deduction excludes losses unrelated to such calamities.
Gambling Loss Deduction
Capped by gambling winnings, this deduction restricts losses to the amount of winnings, mandating meticulous record-keeping and reporting of gambling income.
Hobby Expense Deduction
Aligned with hobby income, deductions only equal the income earned from a hobby, compelling meticulous income reporting and limitations on expense deductions.
Unreimbursed Employee Expense Deduction
Restricted to specific job-related expenses for certain employees, this deduction excludes many from eligibility, emphasizing niche criteria.
Miscellaneous Itemised Deductions
Previously encompassing expenses like tax preparation and investment fees, these deductions ceased to exist post the Tax Cuts and Jobs Act.
Amid these deductions, limitations, restrictions, and prerequisites may erode their potential value. Understanding their rules and consulting a tax professional could be pivotal in maximising tax savings before claiming deductions on your tax return.
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