The tax law lets you deduct a myriad of expenses, the most common of which are mortgage interest and medical expenses. You should figure out your itemized deductions before you take your standard deduction. A person with $62,950 in gross income, for example, can reduce their taxable income to $50,000. How do I know if I should take the standard deduction or itemized deduction? Single taxpayers can deduct $12,950 from their gross income. Most people take the standard deduction, which is available to all taxpayers. (If you’re self-employed, your taxable income is all the money you’ve received for doing that thing you do.) You also owe income taxes on certain other income, such as interest from bank accounts, which is reported on Form 1099-INT, as well as dividends and capital gains, which are also reported on Form 1099. What are deductions?ĭeductions are expenses that you’re allowed to deduct from your gross income, which is what you’ll find in box 1 of your W-2 form. Taxable income is what you’ve earned minus deductions and credits. You may notice we’re talking about taxable income above.
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