J.K. Lasser's 1001 Deductions and Tax Breaks 2023: Your Complete Guide to Everything Deductible

467 Pages·2022·4.651 MB·English

by  Barbara Weltman

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,
J.K. LASSER S™
1001 DEDUCTIONS
TAX BREAKS
AND
2023
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,
J.K. LASSER S™
1001 DEDUCTIONS
TAX BREAKS
AND
2023
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Your Complete Guide
to Everything Deductible
Barbara Weltman
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Contents
Introduction vii
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1. YouandYourFamily 1
2. MedicalExpenses 28
3. EducationCosts 79
4. YourHome 114
5. RetirementSavings 151
6. CharitableGiving 192
7. YourCar 221
8. Investing 235
9. Travel 269
10. RealEstate 290
11. BorrowingandInterest 319
12. InsuranceandCatastrophes 333
13. YourJob 349
14. YourBusiness 370
15. MiscellaneousItems 398
v
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vi CONTENTS
Appendix A. ItemsAdjustedAnnuallyforInflation 422
Appendix B. ChecklistofTax-FreeItems 428
Appendix C. ChecklistofNondeductibleItems 432
Appendix D. CommonMistakestoAvoid 438
Index 441
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Introduction
The word “taxes” makes most people groan. There are good reasons for this
response:Firstofall,thecostofpayingyourtaxesannuallycanbeafinancial
(cid:2) burden.Youmayfeeltakentothecleanerseverytimeyouviewyourpaycheck (cid:2)
afterwithholdingforfederalincometaxes(nottomentionstateincometaxesas
wellasSocialSecurityandMedicaretaxes).Andtaxesaretimeconsuming—to
gatherinformation,meetwithataxprofessionalifyouuseone,orprepareand
submityourownreturns.
Second,itcancostyoumoneytogetyourtaxesdone.TheIRSsaysthatnearly
60%oftaxpayersusepaidpreparersfortheirreturns.Ofcourse,becausemore
than90%ofindividualincometaxreturnsarecompletedbycomputer(througha
paidpreparer,withsoftware,orFreeFile),knowingtheplaceswheredeductions
andcreditsareenteredonthereturnisnotcriticaltoyou;it’seffectivelydone
automatically.
Third,thetaxlawisverycomplicatedandchangingallthetime.Therehave
beenseveralmajortaxactsimpacting2022returns,includingtheConsolidated
AppropriationsAct,2022,theInflationReductionActof2022,andearlierlaws
takingeffectin2022.
Fourth, you have to know what the tax rules are and can’t claim ignorance
to avoid taxes and penalties. Even if you use a tax professional or tax prepa-
rationsoftwaretoprepareyourreturn,youremainresponsibleforyourtaxes.
TheTaxCourthasnotedthatusingsoftwareisnotanautomaticexcusetoavoid
underpaymentpenalties.
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viii INTRODUCTION
How can you combat the feeling of dread when it comes to taxes? It helps
to know that the tax law is peppered with many, many tax breaks to which
you may be entitled. These breaks allow you to not report certain economic
benefits you enjoy or to subtract certain expenses from your income or even
directlyfromyourtaxbill.AsthefamousjuristJudgeLearnedHandoncestated
(inthe1934caseofHelveringv.GregoryintheCourtofAppealsfortheSecond
Circuit):
Anyonemayarrangehisaffairssothathistaxesshallbeaslowaspossible;he
isnotboundtochoosethatpatternwhichbestpaystheTreasury.Thereisnot
evenapatrioticdutytoincreaseone’staxes.OverandoveragaintheCourts
havesaidthatthereisnothingsinisterinsoarrangingaffairsastokeeptaxes
aslowaspossible.Everyonedoesit,richandpooralike,andalldoright,for
nobodyowesanypublicdutytopaymorethanthelawdemands.
Sogetyourtaxaffairsinorderandlegallyreducewhatyoupayeachyearto
UncleSam!
Ingettingahandleonhowtodothisbytakingadvantageofeverytaxbreak
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you may be entitled to without running afoul of the Internal Revenue Service
(IRS),therearesomesimplerulestokeepinmind.Theyinclude:
• You must report all of your income unless a specific law allows you to
exclude or exempt it (so that it is never taxed) or defer it (so that it is
taxedatalatertime).
• You can claim deductions only when and to the extent the law allows.
Deductions are referred to as a “matter of legislative grace”; Congress
doesn’t have to create them and does so only for some purpose (for
example, to encourage economic activity or to balance some perceived
inequityinthetaxlaw).
• Taxcreditsareworthmorethantaxdeductions.Acreditreducesyourtax
payment on a dollar-for-dollar basis; a $1,000 credit saves you $1,000 in
taxes.Adeductionisworthonlyasmuchasthetoptaxbracketyouarein.
Supposeyouareinthe24%taxbracket,whichmeansthisisthehighest
rateyoupayonatleastsomeofyourincome.Ifyouhavea$1,000deduction,
itisworth$240(24%of$1,000)becauseitsavesyou$240intaxesyouwould
otherwisehavetopay.
• In a number of cases, different deduction rules apply to the alternative
minimum tax (AMT), a shadow tax system that ensures you pay at least
some tax if your regular income tax is lower than it would have been
withoutcertaindeductions.
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