Can You Write Off Your Yearly Tax Payments?
Clarify if your yearly tax payments are deductible. Learn the rules for what qualifies and how to properly claim these deductions.
Many individuals seek ways to reduce their tax burden, often wondering if yearly tax payments can be “written off.” For federal income tax purposes, “writing off” generally means claiming tax deductions, which lower the amount of income subject to taxation. This article clarifies what a tax deduction entails, identifies deductible and non-deductible tax payments, and explains how to claim these deductions.
What a Tax Deduction Means
A tax deduction functions as an amount subtracted from your gross income, ultimately reducing your taxable income. This reduction means you pay taxes on a smaller portion of your earnings, which can lead to a lower overall tax liability. The benefit of a deduction depends on your tax rate, as it reduces the amount of income subject to that rate. For instance, if you are in the 22% tax bracket, a $1,000 deduction would save you $220 in taxes.
A tax deduction differs from a tax credit. Both reduce your tax bill, but in different ways. A tax credit provides a dollar-for-dollar reduction of the actual tax you owe, meaning a $500 credit directly lowers your tax bill by $500. In contrast, a deduction reduces the income amount on which your tax is calculated, thereby indirectly lowering your tax liability. Taxpayers choose between a standard deduction or itemizing, aiming for the lowest tax owed.
Taxes You Can Deduct
State and Local Taxes (SALT) paid to state and local governments can be deducted on your federal income tax return. To be deductible, the tax must have been imposed on you and paid during the tax year.
This includes state and local income taxes. Alternatively, taxpayers can deduct state and local general sales taxes if those payments provide a greater tax benefit than income taxes.
Real estate taxes, also known as property taxes, paid on your main residence and any other real estate you own are deductible. For these taxes to be deductible, they must be based on the property’s value, levied uniformly, and used for a governmental purpose. Personal property taxes are another type of deductible tax, provided they are charged annually and based on the property’s value, such as taxes on vehicles or boats.
Taxes You Cannot Deduct
Federal income taxes, including those withheld from wages, are not deductible. This prevents a circular deduction where federal taxes would reduce federal taxable income.
Social Security and Medicare taxes, often referred to as FICA taxes, are not deductible for individuals. These are considered contributions to specific government programs rather than deductible expenses. Federal excise taxes, which are taxes on the sale or production of certain goods or services, are also non-deductible.
Gift taxes, generally paid by the person making a gift, are not deductible on the income tax return. While there are annual exclusions and lifetime exemptions for gift tax, the tax itself is not an income tax deduction. Estate taxes, levied on the transfer of a deceased person’s property, are also not deductible on an individual’s income tax return.
How to Deduct Your Taxes
Claiming deductions for eligible tax payments requires itemizing deductions on your federal income tax return. This means you must complete Schedule A (Form 1040), titled “Itemized Deductions,” and attach it to your Form 1040. Taxpayers must choose between taking the standard deduction, a fixed amount based on filing status, or itemizing their deductions. You can only itemize if your total eligible expenses exceed the standard deduction amount for your filing status. For instance, the standard deduction for a single filer in 2024 is $14,600.
When itemizing, the deduction for state and local taxes (SALT) is subject to a limitation. The total amount you can deduct for state and local income taxes (or sales taxes), real property taxes, and personal property taxes is capped at $10,000 per household. For married individuals filing separately, this limit is $5,000. It is important to maintain records, such as tax statements and canceled checks, to substantiate any deductions claimed.