4 Ways to Enjoy Tax Benefits in the US

A tax benefit comes to you in different forms, such as credit, deduction, or exclusion. Generally, the term ‘tax benefit’ refers to an opportunity you’re presented with to reduce your tax bill. However, you need to meet certain eligibility requirements for this.

The amount of tax savings you can have also depends on the type of tax benefit that you claim. Each of them offers a different type of savings. Here we present the different ways of enjoying tax benefits:

1. Tax savings with deductions

You can reduce the amount of your income that’s taxable when you claim a tax deduction. This is one of the most common types of tax benefits that you can have. The amount you’re eligible to claim as deduction is the amount of reduction to your taxable income. Medical expenses, state income taxes, tuition cost and fees, and charitable contributions are the deductions that taxpayers frequently claim.

2. Tax credits

You can claim tax credit for a variety of expenses that you might incur during the year. They include everything from college tuition to the installation of equipment for energy efficiency in your home. It might not be wrong to say that tax credits have more tax-saving potential than deductions. The reason is that it offers a dollar-for-dollar reduction in the income tax amount.

This is much more beneficial than merely reducing the amount of taxable income. You’re must prepare a separate credit-specific form by the IRS when claiming a tax credit. Additionally you need to calculate your eligible amount, which is regardless of the amount you’re claiming.

3. Exclusion from tax

Exclusions classify some of the income types as tax-free. An exclusion from tax gives you the ultimate tax benefit as the income won’t show on your tax return. If it does end up on your tax return, it generally comes off in another section. Foreign earned income exclusion is among the largest exclusions that are available to the taxpayers.

The law now allows you to exclude up to $108,700 of income earned outside the United States. For this you must have stayed in a foreign country for most part of the tax year. Exclusions are not subject to reductions or limitations unlike the deductions. You’ll either meet the requirements to exclude your income or you’ll not.

4. Capital losses

There’s no denying that losing money is not a pleasant experience, but what if there’s an advantage to it? In fact, a loss might give you the opportunity to reduce your tax. Taxpayers often sell their stocks during the year. What’s interesting about this is they sell for an amount lesser than what they had paid for them.

This is called ‘capital loss’. You can use it to offset other capital gains made during the year. If the amount of your losses are more than your gains, you have an advantage. You can then utilize up to $3,000 of your loss every year as a normal tax deduction.

This can be done until you’ve deducted the complete amount of loss. For claiming the loss, you’ll need to calculate all of your capital gains and losses. This is done on Schedule D that you attach to your personal income tax return.

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