- When you put money into a certificate of deposit (CD), banks will generally charge you a penalty if you make a withdrawal before the CD fully matures. If you pay any of these penalties during the year, the IRS allows you to deduct them on your return. In most cases, you will receive a Form 1099-INT from the bank reporting all interest you earned and the penalties you paid during the tax year. There is no limitation on the amount of penalties you can deduct even if it's more than the interest you earned.
- The IRS allows you to set up an account where you can set aside money to cover your medical expenses. The benefit of opening a health savings account (HSA) is that all contributions you make to the account are deductible on your federal income tax return. In addition to a tax deduction, the interest your money earns in this account is tax-free. As long as you withdraw funds only to pay medical expenses, then the entire account remains free from federal income tax. There are annual contribution limits that vary, depending on the number of people it covers medical expenses for, the type of health insurance you have and the amount of your deductibles.
- If your employer does not provide you with a workspace or if you operate your business from home, you may be eligible to claim a deduction for the expense of maintaining a home office. This allows you to allocate a portion of your personal housing expenses as a work or business-related deduction. For example, if you turn a second bedroom in your apartment to an office and use the room exclusively and regularly for work purposes, then you can allocate a portion of your rent, utilities, repairs and fees for cleaning services to the home office. You perform this allocation by calculating the "business percentage," which is equal to the ratio of the office's square footage to the total square footage of your apartment. This is the percent of your annual expenses you can deduct.
- When an employer requires you to purchase tools or supplies as a requirement of the job, you can claim a deduction for their total costs if the tools are not expected to last longer than one year. For example, if you are a massage therapist and work for a spa that requires you to bring your own towels and oil to work, you can claim a deduction on your tax return for their costs, but only if you itemize deductions.
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