During tax season, it sometimes feels like were giving away all our hard-earned cash to the government.
Deductions are a taxpayers best friend.
What Is a Tax Deduction?
Youre allowed to deduct several types of personal expenses from your taxable income each year.
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This is a long list, so dont get overwhelmed.
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But dont confuse tax deductions with tax credits they aretwo entirely different things.
Deductionsare expenses you incurred throughout the tax year that you’re able to subtract from your taxable income.
Deductions lower your tax bill by reducing the amount of money you pay taxes on.
Creditsreduce the amount of taxes you owe.
Credits are the coupons of tax law.
A credit is a dollar-for-dollar reduction in the amount you owe.
I know this can get confusing, but hang in there.
Lets look at some real-world examples of tax deductions.
Should I Itemize or Take a Standard Deduction?
Its perfectly OK to take astandard deductionand call it a day.
Just remember that yourtax returnmay be smaller than if youd itemized your deductions one by one.
Uncle Sams not such a bad guy after all.
Your Turn: Whats the most interesting deduction on your tax return?
Lisa McGreevy is a staff writer at The Penny Hoarder.
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