9 HUGE Tax Write Offs for Individuals (EVERYONE can use these)

LYFE Accounting
17 Feb 202217:21
EducationalLearning
32 Likes 10 Comments

TLDRThe video script discusses various overlooked tax write-offs for individuals in 2022 that can help reduce taxable income and tax burden. It explains the U.S. progressive tax system and the importance of the standard deduction, which varies based on filing status. The script then delves into specific tax write-offs, including charitable donations, vehicle sales and property taxes, home-related expenses, the residential energy tax credit, education and educator expenses, retirement plans like 401k or IRA, medical expenses, and health savings accounts. It also touches on child tax credits and dependent care tax credits. The video aims to educate viewers on leveraging the tax system to potentially save money and reduce tax liabilities.

Takeaways
  • 📉 Over 2 million taxpayers overpay their income taxes annually, missing out on potential tax write-offs.
  • 💼 The U.S. has a progressive tax system, meaning higher incomes are taxed at higher rates, which can be leveraged with proper deductions.
  • 🏦 The standard deduction is a fixed amount given to taxpayers based on their filing status, reducing taxable income.
  • 💰 Individuals can choose to take the standard deduction or itemize deductions, with the latter being beneficial if the total exceeds the standard amount.
  • 🤝 Charitable donations, including cash and non-cash contributions, are deductible and can significantly reduce taxable income.
  • 🚗 Vehicle sales tax and property taxes are deductible, with a limit of $10,000 for state and local tax deductions.
  • 🏠 Homeowners can deduct mortgage interest, points, and certain other home-related expenses, subject to specific rules and limits.
  • ☀️ The residential energy tax credit allows for a federal tax credit of up to 26% of solar energy system installation costs, phasing out in 2024.
  • 🎓 Education expenses, including student loan interest and educator expenses for classroom supplies, are deductible.
  • 💼 Contributions to a 401k or IRA can be deducted from income, potentially lowering the tax bracket and tax liability.
  • 🏥 Medical expenses exceeding 7.5% of adjusted gross income (AGI) are deductible, and can be combined with Health Savings Account (HSA) contributions for further tax benefits.
  • 👶 Child tax credits and dependent care tax credits are available, offering additional tax relief for eligible families.
Q & A

  • What is a common issue that taxpayers face when filing their taxes?

    -Taxpayers often overpay their income taxes due to not fully leveraging the tax system, which can result in leaving free money on the table that they are actually entitled to.

  • How does the U.S. tax system work in terms of tax brackets?

    -The U.S. has a progressive tax system, meaning that individuals with higher taxable incomes are subject to higher tax rates, while those with lower incomes are subject to lower tax rates. Being in a tax bracket does not mean that one pays the federal income tax rate on their entire income.

  • What is the standard deduction and how does it affect taxable income?

    -The standard deduction is a specific amount that the IRS issues every year to taxpayers. It is a given deduction that depends on the taxpayer's filing status. This deduction reduces taxable income, which in turn can lower the effective tax rate and the amount paid to the IRS.

  • Why would someone choose to itemize their deductions instead of taking the standard deduction?

    -A taxpayer would choose to itemize their deductions if the total amount of individual deductions exceeds the standard deduction amount provided by the IRS. This is because itemizing could potentially result in a larger deduction and thus a lower tax liability.

  • What is a Donor Advised Fund (DAF) and how does it work for tax purposes?

    -A Donor Advised Fund (DAF) is a charitable investment account used to support charitable organizations. Contributions to a DAF are eligible for an immediate tax deduction, and the funds can grow tax-free. Donors can then recommend grants to IRS-qualified public nonprofit organizations at any time.

  • How do vehicle sales and property taxes factor into tax deductions?

    -Sales tax payments on vehicles and property taxes on assets like cars, RVs, or boats can be deducted as itemized deductions on Schedule A. There is a limit of $10,000 for state and local tax deductions, which includes all property, sales, state, and local taxes.

  • What are some of the home-related tax deductions available to homeowners?

    -Homeowners can deduct mortgage interest payments on qualified debt, points paid to buy down interest rates, and other home expenses such as interest on a home equity loan, state property taxes, mortgage insurance premiums (PMI), and prepayment penalties.

  • What is the Residential Energy Tax Credit and how does it apply to solar energy systems?

    -The Residential Energy Tax Credit provides a federal tax credit of up to 26% of the installation costs for solar energy systems, including solar water heaters and solar panels. However, this credit is set to decrease to 22% in 2023 and expire in 2024.

  • How can student loan interest and educator expenses be used for tax deductions?

    -Qualified education expenses, including student loan interest, can be deducted for tuition, room and board, books, and other necessary expenses. Additionally, eligible educators can deduct up to $250 spent on classroom supplies.

  • What are the benefits of investing in a 401k or IRA plan for tax purposes?

    -Investing in a traditional 401k or IRA allows taxpayers to deduct each dollar invested from their income, thus lowering their taxable income and potentially their tax bracket. This can result in paying less in taxes or receiving a larger tax refund.

  • What types of medical expenses can be deducted and what is the threshold for deduction?

    -Qualified medical expenses that exceed 7.5% of the taxpayer's adjusted gross income (AGI) can be deducted. This includes payments to medical practitioners, hospital and nursing care costs, weight loss programs for doctor-diagnosed diseases, prescription drugs, and insurance premiums for medical or long-term care.

  • How do Health Savings Accounts (HSA) contribute to tax savings?

    -Contributions to an HSA are tax deductible, meaning the money put into the account lowers the taxpayer's taxable income, reducing the amount of taxes paid. HSAs can be used tax-free for future health-related expenses.

  • What are Child Tax Credits and Dependent Care Tax Credits?

    -Child Tax Credits allow taxpayers to receive a credit of up to $3,600 per child for the 2021 tax year. Additionally, parents can claim a Dependent Care Tax Credit for children they are unable to care for themselves.

Outlines
00:00
💼 Understanding Tax Write-Offs for Individuals

This paragraph introduces the concept of tax write-offs for individuals, explaining that many taxpayers unknowingly overpay their income taxes due to underutilization of the tax system. The speaker, Sean, aims to educate viewers on how to reduce their taxable income and tax burden by leveraging tax write-offs. The video will cover the tax system's workings, the standard deduction for 2022, and Sean's top overlooked tax write-offs. It also encourages viewers to share any new deductions they've learned in the comments section.

05:01
📊 How the U.S. Tax System Works and the Standard Deduction

The second paragraph delves into the U.S. tax system's operation, using a fictional character named James to illustrate how federal taxes are calculated. It clarifies that being in a certain tax bracket does not mean one pays that rate on all income due to the progressive tax system. The standard deduction is introduced as a fixed amount provided by the IRS to reduce taxable income. The paragraph also discusses the potential increase in the standard deduction if James were to get married and the decision-making process behind taking the standard deduction versus itemizing deductions.

10:02
🏠 Tax Write-Offs for Homeowners and Educators

This section focuses on tax write-offs available to homeowners and educators. Homeowners can benefit from deductions on mortgage interest payments, home equity loans, property taxes, and other related expenses, with certain limitations and conditions. Educators are eligible for a deduction of up to $250 for classroom supplies. The paragraph also touches on the non-deductible home expenses and the residential energy tax credit for solar energy systems, which is set to decrease and expire in the coming years.

15:04
💰 Retirement Plans, Medical Expenses, and Child Tax Credits

The final paragraph discusses various tax write-offs, including contributions to 401k or IRA plans, which can reduce taxable income and potentially place the taxpayer in a lower tax bracket. It also covers medical expenses that can be deducted if they exceed 7.5% of the adjusted gross income, and the Health Savings Account (HSA), which allows for tax-free payments for medical expenses. Additionally, the paragraph mentions child tax credits and the dependent care tax credit, highlighting the financial benefits for parents and caregivers.

Mindmap
Keywords
💡Tax Write-offs
Tax write-offs refer to the qualified expenses that taxpayers can claim to reduce their taxable income, thereby lowering their tax liability. In the video, the speaker discusses various overlooked tax write-offs for individuals, emphasizing their importance in leveraging the tax system to reduce tax burdens. Examples given include charitable donations, vehicle sales tax, and mortgage interest payments.
💡Standard Deduction
The standard deduction is a specific amount that taxpayers can subtract from their gross income to reduce their taxable income, as issued by the IRS annually. It is a key concept in the video, as it is a given deduction that varies depending on the taxpayer's filing status. The video uses the character James, a single filer, to illustrate how the standard deduction reduces taxable income and, consequently, tax owed.
💡Progressive Tax System
A progressive tax system is one where the tax rate increases as the taxable income of the individual increases. The video explains that the U.S. has such a system, which means higher-income earners are subject to higher tax rates. This system is portrayed as fair, as it is designed to distribute the tax burden more equitably among different income levels.
💡Charitable Donations
Charitable donations are contributions made to qualified nonprofit organizations that can be deducted from an individual's taxable income if they itemize their deductions. The video emphasizes that both cash and non-cash contributions qualify, with the latter requiring a qualified appraisal if the donation exceeds $5,000. The script also mentions the CARES Act, which allows non-itemizers to deduct up to $300 in qualified contributions.
💡Donor Advised Fund (DAF)
A Donor Advised Fund (DAF) is a charitable investment account that allows taxpayers to make a charitable contribution, receive an immediate tax deduction, and then recommend grants from the fund over time. The video describes DAFs as a strategy that can be used to support charitable organizations and offers flexibility in timing and choice of charity, as well as the potential for tax-free growth of the invested funds.
💡Vehicle Sales Tax
Vehicle sales tax refers to the taxes paid when purchasing a vehicle, which can be deducted as an itemized deduction on Schedule A of the 1040 tax form. The video mentions that taxpayers can choose between deducting sales taxes or state and local income taxes, depending on which method provides the highest tax deduction. This deduction is also applicable to other assets like RVs or boats.
💡Mortgage Interest
Mortgage interest is the interest paid on a mortgage loan, which can be deducted from an individual's taxable income if they itemize their deductions. The video explains that there are different limits on the amount of mortgage debt for which interest can be deducted, depending on when the house was purchased. This deduction is a significant tax benefit for homeowners.
💡Residential Energy Tax Credit
The Residential Energy Tax Credit is a federal tax credit for homeowners who install solar energy systems, including solar water heaters and solar panels. The video highlights that this credit covers up to 26% of the installation costs and is a limited opportunity, as it is set to decrease and expire in the coming years. It is a non-refundable tax credit, meaning it reduces tax liability but does not result in a refund if the credit exceeds taxes owed.
💡Student Loan Interest
Student loan interest refers to the interest paid on loans taken out for qualified education expenses, which can be deducted from an individual's taxable income. The video mentions that this includes tuition, room and board, books, and other necessary expenses. This deduction is available for loans taken out by the taxpayer, for a dependent, or if the taxpayer is obligated to repay the loan for any other reason.
💡Retirement Accounts
Retirement accounts, such as 401(k)s and IRAs, are savings vehicles for retirement that offer tax advantages. The video explains that contributions to traditional 401(k)s and IRAs can be deducted from an individual's income, thereby reducing their tax liability. These accounts are a way to save for retirement while also lowering one's current tax bill.
💡Medical Expenses
Qualified medical expenses are healthcare-related costs that exceed a certain percentage of an individual's adjusted gross income (AGI) and can be deducted from their taxable income. The video specifies that these expenses must be more than 7.5% of the AGI to be deductible. Examples include payments to medical practitioners, hospital and nursing care costs, prescription drugs, and insurance premiums.
💡Health Savings Account (HSA)
A Health Savings Account (HSA) is a tax-exempt savings account designed to pay for medical expenses. The video explains that contributions to an HSA are tax deductible, which means the money put into the account lowers the individual's taxable income and thus reduces the amount of taxes owed. The HSA can be used for a wide range of medical expenses and allows for tax-free growth of the funds.
💡Child Tax Credit
The Child Tax Credit is a tax credit that can be claimed for each qualifying child, which can reduce the tax liability of the taxpayer. The video mentions that for the 2021 tax year, the credit could be up to $3,600 per child. This is a direct payment from the government to help offset the costs of raising children and is an important tax benefit for families with children.
Highlights

Every year, over 2 million taxpayers overpay their income taxes, potentially leaving free money on the table due to underutilization of tax write-offs.

Understanding the U.S. progressive tax system is crucial to leverage tax brackets effectively and reduce tax burdens.

The standard deduction, which varies based on filing status, can significantly reduce taxable income and thus lower the effective tax rate.

Itemizing deductions can be beneficial if the total individual deductions exceed the standard deduction amount provided by the IRS.

Charitable donations, including cash and non-cash contributions to qualified nonprofits, are deductible and can lead to substantial tax savings.

Donor-Advised Funds (DAFs) offer a strategic approach to charitable giving with immediate tax deductions and the flexibility to support charities over time.

Sales tax payments on vehicles and property taxes can be deducted as itemized deductions, which can be particularly beneficial for vehicle owners and property holders.

Mortgage interest payments, particularly on the first $1 million or $750,000 of debt depending on the purchase date, are deductible, reducing taxable income.

The residential energy tax credit offers a federal tax credit of up to 26% of installation costs for solar energy systems, encouraging clean energy adoption.

Student loan interest and educator expenses, including classroom supplies, are deductible, providing tax relief for those in education and those with educational loans.

Investing in a 401k or IRA can lead to significant tax savings as contributions are deductible from income, potentially lowering tax brackets.

Medical expenses exceeding 7.5% of adjusted gross income (AGI) are deductible, offering tax relief for those with substantial healthcare costs.

Health Savings Accounts (HSAs) allow for tax-deductible contributions, providing a tax-advantaged way to save for future medical expenses.

Child tax credits and dependent care tax credits offer additional tax relief for families with children, supporting their financial well-being.

The CARES Act allows individuals taking the standard deduction to deduct up to $300 of qualified contributions, expanding tax benefits for charitable giving.

There is a $10,000 limit for state and local tax deductions, which includes property, sales, state, and local taxes, impacting the total tax deduction one can claim.

Homeowners cannot deduct expenses such as homeowner insurance, principal payments, title insurance, settlement costs, deposits, or earnest money, which are important considerations for tax planning.

The IRS sets a contribution limit for traditional IRA or 401k, which was $6,000 per year or $7,000 for those above 50 years of age in 2022, affecting retirement planning and tax savings.

Transcripts

Browse More Related Video

14 Biggest Tax Write Offs for Small Businesses! [What the Top 1% Write-Off]

What are Tax Write-Offs? Tax Deductions Explained by a CPA!

How to AVOID Taxes... Legally (Do This Now)

What are Tax Credits? CPA Explains How Tax Credits Work (With Examples)

IRS Releases NEW Inflation Tax Brackets...What This Means For You in 2024!

How to File Tax Returns as an international student | Tax Refund 2022

Rate This

5.0 / 5 (0 votes)

Thanks for rating:

Related Tags
Tax DeductionsIndividual TaxpayersCharitable DonationsStandard DeductionRetirement AccountsMedical ExpensesEducation ExpensesEnergy Tax CreditVehicle Tax DeductionsDonor Advised FundsIRS GuidelinesTax PlanningFinancial StrategyWealth ManagementTax Write-OffsHealth Savings Account