Tax season is almost here as we head into late 2022, so many are asking which tax deduction is the best? That depends on different things.
Tax deductions can help you lower your tax bill or even get a bigger refund. It’s important to understand which deductions apply to you so you get the best outcome possible.
There are various tax reductions people can claim, including parents and students. There are specific deductions for people like this to apply to their own circumstances.
Tax season isn’t here yet, but it’s worth preparing for as the end of the year gets closer.
Tax deductions, how they work, and why they’re important
2022 has plenty of tax deductions millions of people will be able to take advantage of. You can use deductions to reduce your taxable income so your final bill is even less. In some cases you’ll even see a refund if it’s a refundable deduction.
You can choose between standardized and itemized deductions. You should do both methods to see which gives you a greater refund before submitting your refund, according to Marca.
Some of the most popular deductions include the child tax credit. This credit will reduce your taxable income by $2,000 for each child under the age of 18 that you have. In 2020 that amount was $3,600 for kids under 6 and $3,000 for kids over 6 and under 18.
Another popular deduction is the American Opportunity Tax Credit. This one is for students and will give the first $2,000 back that was spent on books, tuition, and school fees. Up to 25% is also provided for the next $2,000 spent. This gives a total deduction worth $2,500.
The Child and Dependent Care Tax Credit is also a popular, and helpful, deduction. This tax credit will cover a portion of the cost of childcare for a working parent. It also covers some childcare for parents going to school. The coverage doesn’t only cover children, but also the cost of caring for an adult that can’t care for themselves.
The Earned Income Tax Credit is another commonly used tax break. This credit helps low to moderate income earners. Households making less than $57,000 can qualify. What you receive depends on your filing status and dependents.
Another tax credit used often is the interest paid on student loans. In 2021 borrowers could deduct up to $2,500. Many may not be able to claim this due to the pause on interest for student loan payments.