Your Complete Guide to the IRS Tax Deduction Calculator

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.

You might also be interested in: 

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!