If you’re a student or working in a small business, there are some tax tips you should know about says Aron Govil.
Here are 15 of the most important ones:
1. You can claim a deduction for work-related expenses.
If you have to purchase any supplies or equipment to do your job, you can deduct those costs from your taxable income. This includes things like stationery, software, and tools.
2. You can also claim a deduction for transportation costs.
If you have to travel to get to your job, or if you use your car for work purposes, you can claim a deduction for those costs. Just make sure that you keep track of the mileage and associated expenses.
3. You may be able to claim a tax credit.
There are a few different tax credits available to students and working taxpayers. The most common ones are the American Opportunity Tax Credit and the Lifetime Learning Credit. Make sure you check to see if you’re eligible for any of them says Aron Govil.
4. You may be able to reduce your taxable income through withholding allowances.
If you’re employed, your employer will have a list of allowances that they can take off your income to reduce the amount of tax you owe. You can add additional withholding allowances on Form W-4 if you qualify for them.
5. Some earnings are not taxable.
You don’t have to pay taxes on all of your earnings from work, even if they add up to over $600 in a year. Money from scholarships and other grants is never taxed, while a portion of your Social Security benefits may be nontaxable as well.
6. There are different rules for independent contractors and employees.
If you’re an independent contractor, then it’s likely that none of the money you earn through self-employment is going to be taxed. You’ll have to file a Schedule C, Profit or Loss from Business if your business is incorporated or a Schedule C-EZ, Net Profit from Business if it’s not, and you may have to pay self-employment tax.
7. There are also different rules for household employees.
If you work in someone else’s home as a nanny or housekeeper, the money you earn is likely going to be taxed at a flat rate of 20%. This income will be considered earned income on your taxes and must appear on Form 1040.
8. Tips that waiters receive while working count as taxable wages.
All tips that waiters receive while they’re at work must be on their W2 forms when they file their taxes.
9. There are different tax brackets for residents and nonresidents.
When you earn money as a student or working taxpayer, it may be taxed at a different rate depending on whether you’re a resident or nonresident of the United States. If you’re not a citizen, then your income could also be subject to double taxation explains Aron Govil.
10. You can avoid being hit with AMT by deducting certain expenses from ordinary income.
The alternative minimum tax is reserved for those who have large amounts of deductions available to them that reduce their taxable income under regular tax rules. If you have many deductions yourself, make sure that they come from ordinary income rather than long-term capital gains or other adjusted forms of income, which may be taxed at a different rate.
11. Deductions can reduce your taxable income under AMT.
Deductions play a big role in reducing the alternative minimum amount of tax you have to pay, so it’s important to know what kinds of deductions are allowed and which ones aren’t for this calculation. Keep in mind that some deductions, such as charitable donations, could be limited or eliminated entirely if you’re subject to the AMT.
12. You can get a deduction from gambling losses up to certain limits.
Even though most types of gambling winnings are taxable. You may be able to deduct your gambling losses up to certain limits. Based on things like how often you gamble and how much money you’ve won over the course of the year.
13. If you’re married, filing jointly may yield bigger deductions than filing as an individual.
If your income is low enough that it would keep you out of a higher tax bracket. Even if you were considered single, then it can be beneficial to file. As “married filing jointly” instead of “married filing separately”. It’s usually worth exploring whether this option will give you bigger deductions and lower your taxes overall.
14. The size of your mortgage interest deduction depends on how much money your home is worth compared to how much money you owe on it.
Your first interest deduction for the year cannot exceed $1 million in debt for mortgages taken out after Dec. 14, 2017 (before that date, the limit was $500,000). The limit applies to the total amount of debt you have on all of your mortgages. So if you have multiple mortgages, Make sure to calculate them all together.
15. You can get a deduction for student loan interest paid during the year.
You may be able to deduct up to $2,500 in student loan interest that you’ve paid during the year. To qualify, your modified adjusted gross income must be less than $70,000. If you’re single or $140,000 if you’re married filing jointly.
Conclusion:
Aron Govil says People often think that tax laws are very complicated and difficult to understand, but once you learn the basics. Filing taxes doesn’t have to be a daunting task. Just remember to keep careful records of all your income and expenses throughout the year for easy reference during tax season. And always ask questions if anything is unclear.