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!

A Quick Guide To Itemized Deductions 

As we all know, careful tax planning can help you maximize your deductions. When preparing your taxes, itemizing deductions may be one way to significantly lower your tax liability.

Read on to find out if the itemized deduction is the way to go for you, and learn when and how to itemize your deductions to really maximize your tax savings.

What are itemized deductions?

Essentially, itemized deductions are deductible expenses approved by the IRS that can lower taxable income. By choosing itemized deductions, you’re able to pick and choose from a huge range of individual tax deductions out there instead of taking the flat-dollar standard deduction.

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What are the different types of itemized deductions? 

Itemized deductions cover a variety of expenses that are only deductible when you choose to itemize. 

Listed below are seven of the most common itemized tax deductions.

1. Home mortgage interest deduction (HMID)

According to the Tax Cuts and Jobs Act (TCJA), homeowners can deduct the interest paid on up to $750,000 in mortgage debt if they took out a mortgage after December 15, 2017 (before this law was passed, you could deduct up to $1 million.)

2. Charitable contributions

How you can deduct from a charitable contribution depends on the type of asset donated and the charity organization you donate to. Remember, not every recipient charity organization is qualified under the tax law, so make sure to check if you’ve donated to approved tax-exempt charities carefully. 

Here is a useful link to help you do your research: 

3. IRA contributions deduction

Your contributions to a traditional IRA are deductible. However, this isn’t the case for contributions to a Roth IRA. 

Your eligibility for IRA contributions deduction is determined by your filing status, income, Social Security eligibility, and access to a workplace retirement plan. You can contribute up to $6,000 and deduct it from your taxes in 2021 and 2022, and if you’re 50 or older, you can add another $1,000 to that.

4. Medical expense deduction

As of 2021, you can deduct only eligible, unreimbursed medical expenses that exceed 7.5 percent of your adjusted gross income (AGI). For example, if your AGI was $60,000, you wouldn’t be able to deduct any amount lower than $4,500 in eligible medical expenses.

Some common examples of non-deductible medical expenses are those that are covered by your insurance or employer. Aesthetic operations are also generally unapproved by the IRS. Nonprescription medications (excluding insulin) and other purchases for general health, such as toothpaste, health club dues, vitamins, diet food, and nonprescription nicotine products, are normally not deductible. Medical expenses paid in a previous year are likewise not deductible.

For a complete list of tax-deductible and non-deductible medical expenses, check out IRS Publication 502

If you have clicked the link and feel unmotivated by the long texts, don’t worry! The IRS has created a free tool for you to check if your medical expenses are deductible.

5. State and local taxes deduction (SALT)

The state and local tax (SALT) deduction allows taxpayers who itemize their federal tax returns to deduct certain state and local taxes. Property taxes plus state income or sales taxes, but not both, are capped at $10,000 per year under the Tax Cuts and Jobs Act (TCJA). However, it’s only $5,000 total if you are married and filing taxes separately.

6. Rental property tax deductions

Apart from the obvious profit that your rental property may bring, you can also deduct the expenditures of owning, running, and maintaining the property on your tax return. 

For instance, a popular rental property tax deduction is the allowance for depreciation. You can properly deduct that depreciation every year over the total useful life of your rental assets. However, the math is usually complicated, so it’s best if you can seek professional advice. 

Furthermore, only when your rental property fits the following criteria will you be able to depreciate your property:  

  • The property is yours. 
  • You use the property for your business or to generate income. 
  • The property has a determinable useful life
  • You anticipate the property lasting longer than a year. 
  • The property was not put into operation and was later disposed of (or no longer utilized for business) during the same year. 

7. Student loan interest deduction

The maximum interest deduction for student loans is $2,500. If your adjusted gross income is beyond $80,000 — or $165,000 if married filing jointly — you can’t take the deduction. 

Unlike most other deductions, the student loan interest deduction is claimed as an adjustment to income on Form 1040. This means you don’t have to fill out a Schedule A, which is used to itemize deductions, to claim it.

There’s also a free tool provided by the IRS to help you figure out how much student loan interest you’re eligible to deduct. 

How can I claim itemized tax deductions? 

It’s quite simple to claim itemized tax deductions: you just need to fill in your income taxes using Form 1040 and list your itemized deductions on Schedule A

Firstly, file all your expenses on the appropriate lines of Schedule A, figure out the total of your itemized deductions then copy that number to the second page of your Form 1040. You then will be able to know your final taxable income by subtracting the deductions from your income.  

What type of receipts do I need to keep for itemized deductions?

If you opt to itemize your expenses, the IRS requires you to keep supporting documentation to prove that you did spend those expenses for the purpose you claimed on your tax return. This is because if the IRS has any suspicion regarding your tax claim, they would need those records to find out whether your filing was honest or not. 

While the IRS doesn’t specify exactly which receipts you must keep, you should keep every record that can serve as concrete evidence of purchase, from sales slips and invoices to deposit slips and canceled checks.

A smart way to organize your receipts 

Itemized deductions can save you a lot of money from Uncle Sam, and it’s important to do your taxes correctly in the event of an audit. 

If you’re tired of spending hours and hours collecting and categorizing receipts by yourself, we’re here to tell you there’s a super easy alternative to that. It’s 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!