A tax “write-off” is basically just slang for a tax deduction. It is an expense you can claim on your tax return to reduce your taxable income. Different tax write-offs have different rules and different effects on your tax liability. Here’s how write-offs work, how much they are worth, and how to tell if you can claim them.
What is a write-off?
When you’re talking about taxes, a write-off is an expense that is subtracted from your taxable income. Another name for a write off is a tax deduction.
Tax deductions fall into two categories: above-the-line deductions and below-the-line deductions. Above-the-line deductions are also called “adjustments to income.” Below-the-line deductions are also called “itemized deductions.”
What can I write off on my taxes?
The type of expenses you can write off are determined by the tax laws. It’s important to understand if an item can be deducted before you try to write it off on your tax return.
Personal expenses (like food, shelter, or entertainment) cannot be deducted. Below you’ll find a list of common tax write-offs. We’ve broken them down based on where you claim them on your tax return.
Above-the-line tax deductions
When you’re filing a tax return, your above-the-line deductions are taken first. These amounts get subtracted from your gross income and are used to calculate your Adjusted Gross Income (AGI). AGI is then used to determine if you are eligible to take certain below-the-line deductions.
Some important above-the-line deductions include:
Student Loan Interest – If you meet the requirements, you can write off a maximum of $2,500 paid in student loan interest.
Educator Expenses – If you’re a qualified educator, up to $250 can be deducted on your tax return for expenses you paid for out of pocket.
Self-employment tax – Half of the amount you pay for self-employment tax is deductible on your tax return.
Health Insurance premiums – If you’re self-employed, you can deduct premiums you pay to provide health insurance for yourself and family members.
Retirement Plan Contributions – This deduction is for contributions made to a traditional IRA.
Once you have taken your above-the-line deductions, you’ll decide whether to itemize or take the standard deduction.
What is the standard deduction?
Technically, the standard deduction is a below-the-line deduction, because you take it after you calculate your AGI. Here are some important things to know about the standard deduction:
- Anyone can claim the standard deduction
- The standard deduction amount depends on your tax filing status
- You must choose between the standard deduction and itemizing your deductions – you can’t do both
Below-the-line (itemized) tax deductions
Once you have determined your AGI, itemized deductions help lower your taxable income dollar for dollar. This can result in a lower tax bill for you and even increase your refund if you don’t owe taxes. Read also: What is itemizing and who should do it?
Here are some important below-the-line deductions:
State and Local Taxes (SALT) – The current tax law says you can deduct up to $10,000 ($5,000 if married filing separately) for state and local taxes.
Home office – If you are self-employed, you can choose whether to deduct the square footage of your office space at a flat rate or a percent of certain home office-related expenses.
Donations to charity – 60% of your AGI is deductible for donations to public charities and certain public foundations. Certain private organizations limit deductions at 30%.
Mortgage interest – Single filers and couples filing jointly can deduct the interest on up to $750,000 of qualified residence loans. Couples filing separately can deduct interest on up to $375,000 of qualified debt.
Unreimbursed medical expenses – You can deduct the cost of medical and dental expenses that exceed 7.5% of your AGI.
Should I itemize or take the standard deduction?
Everyone’s tax situation is different. No matter what your situation is, TaxSlayer will find all the tax deductions you qualify for and make it clear whether you should take the standard deduction or itemize. All the calculations are done for you, so you can file knowing that you’re paying only what you owe and getting the biggest refund possible.
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This article was last updated on 09/19/2022.