Are you someone whom a US company employs? Well, then, you must be receiving a W2 tax form year after year to file your taxes. W2 deductions can be tough to decode.
If you are also wondering how you can reduce your tax liabilities, then this newsletter will help you know all about tax deductions for W2 employees, whether W2 work-from-home tax deductions or any other deductions for W2 employees. Here are 7 write-offs you must know about.
7 W2 Tax Deductions To Acknowledge
This list of deductions for W2 employees includes standard deductions, small tax write-offs, and others that can benefit you in the long and short run. It is possible that you are earning a paycheck biweekly, monthly, or every single week.
While it is a great thing to receive money, you need to be aware that you are being taxed simultaneously. These deductions will help you plan your money better.
1. Standard Deduction
One of the most popular tax deductions for W2 employees, standard deductions can vary as per your household structure. For 2023, it is $13,850 for singles and couples filing separately. Whereas it is $20,800 for household heads and married couples filing together it comes down to $27,7000.
These amounts are carefully adjusted every year keeping in mind the inflation. Moreover, they will differ as per your age and other personal factors. Thus, make sure you are claiming them when you sit down to file your income tax each year.
2. Rental Property Loss Deduction
Other W2 deductions in the list include the rental property loss deduction. If you own a rented property as a W2 worker and you have lost money on the same, you can claim the loss on your income taxes. This will take into account the rent defaulted by your tenants or losses due to rent charged below the market price.
However, to claim this your income must fall below a certain range. The maximum rebate you can get for these losses comes to 25,000 USD/ year.
3. Individual Retirement Account (IRA)
As a W2 employee, your employer may or not offer a retirement plan. In case you are not covered by the same, you can choose to claim the entire amount. This will help you save for your retirement as well. If you are married, and your spouse has adequate retirement cover, you can still claim W2 deductions, only the amount will be reduced.
At the same time, workers who are not paid that well but are covered by their employees can claim deductions only if their income is below a certain threshold.
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4. Child Tax Credit
It doesn’t exactly fall in the bracket of W2 tax deductions. However, taxpayers who have children must claim this.
For the same, the child must be below 17. They can be your sibling, biological/foster/adopted child, or even your niece/nephew. However, the child must be dependent on you and should not be earning more than 50% of their financial support. Also, the child must be living with you for more than 6 months. Last, but not least, the child must be a US citizen.
5. 401(k) Plan
These particular tax deductions for W2 employees offer the maximum benefits.
Firstly, they reduce your taxable income. While you will be taxed on the amount you have given, during the time of withdrawals you can leverage strategies to pay taxes on a lower interest rate. This will let you reduce the total tax paid on 401 (k) contributions.
6. Home Mortgage Interest
Home mortgages can run high and if you are not claiming W2 tax deductions for the same, you are missing out on a lot. You can easily claim some portion of loan interest as tax deductions. However, your mortgage has to fall under the secured debt category. Also, it will be considered as a part of an itemized deduction.
This means you can include it only as an itemized deduction and not claim with the standard deduction. The amounts can vary as per the size of your mortgage.
7. Charitable Donations
While charitable donations were eligible for W2 tax deductions till 2023. Post that, they are considered only as itemized deductions. Thus, you need to be careful when choosing between standard deductions or charitable donations, as you cannot claim both.
Final Words
Moon Invoice is here to help you claim all tax deductions for W2 employees. As mentioned above, standard deduction is the easiest deduction all employees can claim. It depends on your age and filing status. If you wish to take a step ahead, you can explore 401k contributions, mortgage interest deductions, and other tax rebates.
Moon Invoice will keep track of all your expenses and help you get the best tax relief. The tool's top-notch categorization functionalities let you tap on the right tax support and make tax filing easier than before.
