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What Are the Best Tips for Calculating Deductions?

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  • Written By: K. Reynolds
  • Edited By: Jessica Seminara
  • Last Modified Date: 21 November 2016
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A person looking for the best tips for calculating deductions would need to first learn about the numerous tax deductions available to the citizens of his or her country. After gaining a better understanding of the tax deductions available within the country, people can then determine which deductions they would be entitled to claim on their taxes. It is important to know the difference between personal and business deductions as calculating deductions in these categories are drastically different.

When a person or company files their annual taxes, they will be entitled to a variety of deductions that can be claimed in order to lower their tax liability. Calculating deductions correctly is extremely important as they can effectively lower the taxable income of a person or company. If done correctly, it is possible to save a good amount of money; however, calculating deductions incorrectly could cause a person or company to pay more in taxes than obligated to pay. Any person or company responsible for purposely calculating deductions incorrectly could be subject to fines, penalties, and even incarceration.

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Individuals and companies must determine which exemptions they are entitled to claim on their taxes. Many personal deductions will revolve around deducting mortgage interest, medical expenses, and charitable contributions, for example. Calculating deductions for companies involves determining all of the expenses associated with operating the business. These expenses can include fixed overhead expenses, such as rent and payroll costs, as well as variable expenses, such as office supplies and advertising costs.

A person looking for the best way to calculate deductions should first look towards the deductions related to real estate ownership. If a person owns his or her home, deducting the mortgage interest associated with that home can offer a great tax deduction. In the United States, a person would be allowed to claim this exemption on the funds borrowed for a mortgage, up to a specified limit. A person would also be entitled to deduct interest on any home equity loan less than a specified amount. The real estate taxes associated with that home are also another great tax deduction that can be claimed. There are numerous deductions that revolve around real estate; therefore, this is a great place to start when looking to calculate applicable deductions.

Both companies and individuals should look to calculate deductions surrounding any charitable contributions that may have been made during the tax year. Donations to charities and non-profit organizations can be claimed as itemized deductions if they meet certain parameters. Every country has different parameters surrounding charitable contributions; therefore, it is important that one conduct due diligence first.

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