A tax-deductible item, or tax deduction, off your income is when an expense is lopped off your adjusted gross income (also known as your total income) to reduce the amount of your income that is subject to tax. Huh? Basically, having a tax-deduction on your overall income basically allows you to shelter a part or parts of your salary from being taxed in total by the government. Sadly, it's not as easy as simply setting some unreported money aside, with the vague hope that the government won't notice (there's a term for that -- it's called tax evasion!). The IRS has a list of expenses, along with specific rules surrounding each one, that are legally considered tax-free. These expenses include (among others):
- A home mortgage.
- Apartment rent, if you make under a certain amount.
- Business expenses, including all expenses it might take to start your own business, travel and meals. Technically, these expenses can't exceed your total business income.
- Charitable contributions. If you save the receipts, this can even include all your old junk you donate to Goodwill!
- Any expenses paid in the removal of building barriers to the elderly and disabled.
- Union dues.
- Medical expenses that exceed a certain percent of your total income.
- Any work-related apparel. This can include uniforms, or necessary items such as safety goggles, safety helmets or heavy-duty gloves or shoes.
- In some situations, moving expenses can be tax-deductible.
Finding ways to ensure that portions of your income are tax-deductible is a fabulous way to save more money that would have otherwise gone to Uncle Sam, because it lowers your total taxable income. Say you make $28,000 per year, and you pay $1,000 in rent every month. Last I checked, the cutoff point for rent being tax-deductible was if you made $30,000 or less, so you would essentially shelter $12,000 worth of rent per year from being taxed, which means more money for you in the long run!