The discussion concentrates on methods to reduce your taxes and potential risks leading to a delayed return or an audit. There’s another section on tax exemptions which differs from tax deductions.  The idea is to keep more of the money you made and:

1. reduce your tax income
2. find personal tax deductions
3. find tax credits

This discussion is not intended as legal advice, and cannot be relied upon for any purpose without the services of a qualified tax professional.  

There’s a long list of possible personal deductions. Consider any expense that helps you make money, offers protection, or fulfills the direction of a doctor. Review those types of expenses with a tax professional to determine if they qualify. There are plenty of interesting cases that have won in the Tax Court that may not seem obvious.   

Tax Deductions

For personal income taxes there two options for tax deductions which only one can be selected. Therefore it’s important to determine which path provides the best return. 

1. Standard deduction
2. Itemized deductions 

The types and details around tax deductions frequently change. Listed below are a few to consider. 

Student Loan Interest: Depending on your income this interest may be deductible up to $2,500. Learn about other ways to reduce the costs of college related expenses. 

Medical Expenses: it may be possible to write off these expenses if you itemize your deductions and you’ve spent more than 10% of your adjusted gross income (AGI) on qualified medical expenses. Learn about other ways to reduce medical expenses or file a complaint if you feel your bills are excessive.

Mortgage Interest: The interest paid on a primary home mortgage may be eligible for a partial deduction. 

Property Taxes: Local property taxes may be eligible for partial deductions.

Business: Expenses related to your business may qualify as business-related expenses such as a computer, furniture, supplies, travel, vehicles, meals and home office space.

If you’re company has ask you to work from home consider asking them to compensate you for related costs such as a printer, copier, scanner, paper, and more. If you’re making phone calls or using your internet you may also consider requesting assistance to pay those fees. This list goes on but be reasonable and fair; greed may lead to problems for you down the road. If you ask them to pay a portion of your electric, heat, and water bill this may be going to far. 

Charity (Donations) – see section below.

Tax Credits

Tax credits get applied to the tax amount owed and reduce this amount dollar-for-dollar. There are two types: 

1. Refundable – provides a refund up to amount and greater than you owe.
2. Nonrefundable – provides a refund up to the amount but not greater than the amount owed.

   Common Tax Credits

   There are many tax credits available for individuals. Since the available credits change frequenlty work with a tax professional to help determine if you qualify. The links below are references to the IRS website that explain the programs and qualifiers. The button at the bottom pertains to small businesses and tax-exempt organizations.

Family

Child Tax Credit (CTC)

Additional Child Tax Credit (ACTC)

Credit for Other Dependents (ODC)

Income 

Earned Income Tax Credit (EITC) – Saver’s Credit

Education – check out the quiz below too.

Lifetime Learning Credit (LLC)

American Opportunity Tax Credit (AOTC)

Homeowners

Mortgage Interest Credit (MCC)  

Energy

Residential Energy Credit – nonbusiness energy property credit and residential energy efficient property credit.

Health Care

FOR SMALL BUSINESSES – Health Care Tax Credit

Check your eligibility for a tax education credit with this simple 10 minute quiz developed by the IRS. 

Protective Mortgage Insurance (PMI)

Deductions can help reduce your tax obligations. One key deduction that has been resurrected is a deduction for premiums paid for private mortgage insurance (PMI). This originally expired at the end of 2017 but Congress has extended it through 2020 and making it retroactive for 2018. Contact your tax preparer to determine if it makes sense to amend your returns to get more money back. 

PMI premiums are normally added to conventional loan payments when the the downpayment is less than 20% of the original loan amount. The principle of PMI is to protect the lender taking on more risk with <1/5 down. The cost of PMI normally depends on the type of loan, down payment amount, length (term) of loan, and your credit score. Typical rates are 1-6% annually of the original loan amount. 

You’ll typically pay PMI in addition to your monthly mortgage payment on a loan that has it’s own interest rate. Some lenders may allow you to pay the PMI premium in one lump sum or a combination of both. If you plan to make extra loan payments to get to the 20% threshold sooner than the standard amortization plan, you may not want to pay a lump sum up front. A downpayment closer to the 20% mark relieves you of these PMI fees sooner than later (assuming you make payments to get to the 20% mark). Once you get to 20% you’ll be paying interest on the loan instead of the loan interest + PMI interest.