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How do Tax Deductions Work?

Tax Deductions

Deductible: something that can reduce the amount of taxes you have to pay

Deductible Items

  • Business expenses
  • Medical expenses
  • Retirement items
  • Educational items (like student loan interest)
  • Charitable donations… and many more

Tax deductions reduce the amount of your income that is taxable by the government

For example, if you donate a private jet to charity (assuming they agree this is a tax deductible expenses), it will lower your taxable income by the dollar amount of the expense

Taxable income – Donation = New taxable income

Tax Benefits for a College Student

According to the IRS, there are two educations categories where a student can earn tax credits:

  1. The American Opportunity Tax Credit
  2. The Lifetime Learning Credit

Education credits help reduce your education costs

Other education related tax deductions:

  • Student Loan Interest Deduction
  • Students Loan Cancellations and Repayment Assistance
  • Tuition and Fees Deduction

Overlooked Tax Deductions

  • Job Hunting Charges
  • Tax Prep. Fees
  • Hobbies
  • Personal Legal Bills
  • Charitable Mileage
  • Health Insurance
  • Retirement

Fun Facts

  • In South Carolina, you can get a $50 deduction if you donate a dead deer to the poor
  • Hawaii gives a $3,000 tax deduction to those who grow state-approved trees

“The hardest thing to understand in the world is the income tax.” – Albert Einstein

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