Your Complete Guide to the IRS Tax Deduction Calculator

Tax deductions can save you a lot of money if you understand what they are, how they work, and how to take advantage of them. Have you ever wondered how much your qualified deductions total? What is the best IRS tax deduction calculator for a freelancer? 

This article will help you figure out the most common tax deductions for individuals and businesses and how to calculate them. 

What is a tax deduction? 

A tax deduction reduces the amount of income that is subject to taxation, lowering your taxable income. Alternatively, you can claim a tax deduction from your tax liability to cut the level of tax you owe.

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Mortgage interest, charitable contributions, medical expenses, and home office deductions are all qualifying categorized deductions.

Let’s read on to find the IRS tax deduction calculator for the most common tax deductions. 

The IRS tax deduction calculator 

Personal tax deduction

  • Mortgage interest

The mortgage interest deduction is available for mortgage interest paid on the first $1 million of mortgage debt. For homes bought after December 15, 2017, owners can claim only upwards of $750,000 in purchasing debt for their first and second properties. This 25% decrease in deductibility is predicted to continue from 2018 to 2025.

You must be legally obligated to pay the debt and make the payments reported to the IRS by your lender to claim this deduction.

  • Charitable donations

You can claim any money or nontaxable donations you provide to a qualifying philanthropic group if you qualify. To be eligible for this deduction, you must have evidence of any financial assistance, even if it is less than $250

You must get a certificate or acknowledgment from the nonprofit organization for any nontaxable (property) contributions and monetary donations over $250. Depreciation and amortization (property) contributions of more than $500 must be reported on Form 8283, Noncash Charitable Contributions, and your tax return.

For 2021, single taxpayers can deduct up to $300 in cash charitable donations, while married couples filing together can deduct up to $600. You can get the tax break even if you only take the standard deduction and don’t itemize.

  • Qualified business income

If you qualify for this deduction, you can subtract any dentistry expenses that reach 7.5 percent of your gross pay. For example, if your AGI (Adjusted Gross Income) is $100,000, you can claim medical expenses exclusively to the extent that they surpass $7,500. In this case, if your medical expenses are $10,000, you can deduct $2,500. 

Acceptable healthcare expenses also include health insurance and expenditures for you and your children that are not covered by health insurance.

If you have a qualifying Health Savings Account (HSA), you can offset your donations to the fund and don’t have to pay taxes on the income you earn.

Small business tax deduction

  • Qualified business income

The 2018 tax policy bill completely changed the way expenditures benefit most taxpayers, especially small-business owners. Most small businesses (single proprietorships, LLCs, S corporations, and partnerships) will be allowed to withdraw 20% of their revenue on their tax under the new tax code. Woo-hoo!

If you operate a small firm that makes $100,000 in revenue in 2019, you can offset $20,000 until regular income tax rates apply.

However, some restrictions may prohibit you from receiving this benefit. The most significant impediment is the income cap used for some high-earning business owners, such as lawyers, doctors, and consultants. 

This deduction begins to phase out if your income surpasses $157,500 for single filers or $315,000 for taking business owners filing a combined return.

  • Home office

Do you use an extra room in your house or apartment as a home office? Excellent news! That means you’ll most likely be able to itemize deductions for your home’s business usage, such as mortgage interest, insurance, utilities, repairs, and depreciation. 

Small-business owners can claim $5 for every square foot of their headquarters, limited to 300 square feet, under the more straightforward form of this deduction.

However, keep in mind that you can only claim this benefit if your home office is being used entirely for business activities regularly. It’s not going to work if your home office also serves as a guest room for your mother when she visits.

  • Business vehicles

Many small-business entrepreneurs rely on vehicles to get things done, whether traveling to and from consultations or using a tractor-trailer to haul construction machinery from job site to job site. 

You can deduct car payments from your income if you demonstrate using it for business reasons. There are two ways to claim this deduction:

Using the average kilometer rate. To calculate your claim, add all of the miles you went to work and multiply by the IRS’s standard deduction rate. The regular mileage rate in 2019 is 58 cents for each mile. 3 For example, if you traveled 5,000 miles for business in 2019, you can claim $2,900 from your taxes.

Using all of your actual driving costs. This alternative will require a little more effort. If you keep accurate records year-round, you can calculate how much your vehicle lost and spend on gas, maintenance, tires, tune-ups, vehicle insurance, and registration costs for business purposes. That will be your deductions instead of the miles.

You can choose either way, depending on how fuel-efficient your car is, how much it costs you to drive it during the year, and how effectively you keep track of your automobile-related expenses. But whatever your choice is, it’s still a good idea to keep proper records of your vehicle bills and digitize them with Shoeboxed to keep yourself prepared for tax season! 

About Shoeboxed

Shoeboxed is a receipt management application that turns your receipts and business documents into a digital format in just one click by taking a picture straight from your smartphone or scanning a pdf. It automatically extracts, categorizes, and human-verifies important data from your receipts so that you can go over and check your records anytime with ease. Shoeboxed ensures you will always have your receipts securely stored and ready for tax purposes.

Access your Shoeboxed account from your web browser or smartphone app. Stay audit-ready with Shoeboxed for FREE now!

What Is the Property Tax Deduction and How do I Claim It?

When you own property, such as a car, a house, or land, you have to pay annual property taxes to your state or local government, depending on the value of your property. However, you may be able to claim a property tax deduction from your federal income tax bill. 

This article will bring you an overview of the property tax deduction and how to claim it. 

What is the property tax deduction?

Property taxes are paid on property owned by an individual or other legal entity (such as an LLC or a corporation) to the state and local tax authority of the property’s jurisdiction. These taxes are generally used to fund public services such as schools, roadways, libraries, and first responders.

Property taxes are virtually always levied on several types of property, and each state, county, and municipality sets the taxable value for each item.

Common examples of property taxes are mortgage interest, state and municipal taxes on property investments such as homes, land, or apartments, and taxes collected on personal property such as boats or vehicles.

What is deductible

The IRS accepts the following items as property tax deductions: 

  • Your primary house
  • Houses for vacationing
  • Apartment in a cooperative (see IRS Publication 530 for special rules)
  • Land
  • Cars, boats, RVs, and other types of vehicles

What is non-deductible

Certain items on your real estate property tax bill may look like taxes but are actually miscellaneous charges and are not deductible. These are the following: 

  • Taxes on properties you don’t own
  • Property taxes you haven’t paid yet
  • Transfer taxes when you sell your properties
  • Expenses for public services, such as water or garbage collection.
  • Renovation expenses to your home (even if they add value to your property)
  • Payments on loans for energy-efficient house upgrades. (However, you may be able to deduct the interest component of your payment as home mortgage interest.)
  • Property taxes plus government and county tax payments or state taxes totaling over $10,000 ($5,000 for married filing status).
  • Local benefit taxes for constructing streets, walkways, or sanitary sewer infrastructure in your neighborhood. (However, taxes on the maintenance or repair of these items are deductible)

FYI: You can deduct your maintenance and repair expenses; however, only if the tax authority itemizes these amounts in your bill.

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How to claim your property tax deduction

Store your tax documents properly 

If you pay taxes on your properties, you may be able to deduct this sum from your income tax. However, you need to be extra accurate when estimating your property taxes for the year. A simple practice to achieve your goal of claiming a property tax deduction is to keep a copy of your property documentation. 

For example, though your local taxing authority can give you a copy of your property taxable income, you should also keep the licensing documentation for your car, boat, or other mobile assets. If you have a home mortgage, require a 1098 Form from your mortgage company to state how much property tax you paid. And lastly, if you pay your taxes with a check, make sure you keep the bank statement showing how much you paid.

Use Schedule A to file your property taxes

Schedule A is used by the IRS to file taxes on a federal income tax filing. In this file, you should specifically categorize your deductions for property taxes. This form itself is where taxpayers keep track of their write-offs and any property taxes they want to deduct. Filers can also deduct expenses of monthly mortgage interest they paid throughout the tax year using this form.

Subtract your property taxes in the year you pay them. 

This may sound simple, but don’t let it fool you. Property taxes are normally paid in one of two ways: by writing a check once or twice a year when the bill arrives or by setting away money each month in an escrow account while paying the mortgage. Don’t rely on the second way; you should only deduct the taxes you paid during the year.

The bottom line

Calculating your property tax deduction can be challenging, especially when tax percentages differ depending on your county. But by keeping our guidelines in hand, you can easily get the most out of your qualified property tax deduction, lower your taxes, and even be able to invest your money in other areas. 

If you’d like to discover more helpful tax knowledge, don’t forget to subscribe to the Shoeboxed blog

Shoeboxed is a receipt management application that turns your receipts and business documents into a digital format in just one click by taking a picture straight from your smartphone or scanning a pdf. It automatically extracts, categorizes, and human-verifies important data from your receipts so that you can go over and check your records anytime with ease. Shoeboxed ensures you will always have your receipts securely stored and ready for tax purposes. Access your Shoeboxed account from your web browser or smartphone app. Stay audit-ready with Shoeboxed for FREE now!

Claiming a Deduction for Your Home Office

Taxpayers who use a portion of their home for business purposes may be able to take a home office deduction if they meet certain requirements.

In order to claim a business deduction, you must use part of your home for one of the following two reasons:

  1. Exclusively and regularly as either: your principal place of business, or as a place to meet or deal with patients, clients or customers in the normal course of your business. Where there is a separate structure not attached to your home, the regular and exclusive use does not need to be your principal place of business as long as the use is in connection with your trade or business.
  2. On a regular basis for certain storage use — such as storing inventory or product samples — as rental property, or as a home daycare facility.

Generally, the amount you can deduct depends on the percentage of your home that you used for business. Your deduction for certain expenses will be limited if your gross income from your business is less than your total business expenses.

If you use a separate structure not attached to your home for an exclusive and regular part of your business, you can deduct expenses related to it.

There are special rules for qualified daycare providers and for persons storing business inventory or product samples.

If you are self-employed, use Form 8829 to figure your home office deduction and report those deductions on line 30 of Schedule C, Form 1040.

Different rules apply to claiming the home office deduction if you are an employee. For example, the regular and exclusive business use must be for the convenience of your employer.

For more information see IRS Publication 587, Business Use of Your Home, available at IRS.gov or by calling 800-TAX-FORM (800-829-3676).
Links:

  • Publication 587, Business Use of Your Home (PDF 214K)
  • Form 8829, Expenses for Business Use of Your Home (PDF 64K)
  • Form 8829 Instructions (PDF 29K)
  • Schedule C, Profit or Loss from Business (PDF 111K)
  • Schedule A, Itemized Deductions (PDF 116K)