The end of the year means tax season and with filing taxes, you want to take advantage of as many tax deductions as you can. The term write-off often refers to a deduction but it can also be used to describe a tax credit. While a tax credit can result in more substantial savings than a deduction, both are ways to reduce your tax bill.
Vehicle Registration Fees and Property Taxes
Different states assess vehicle registration renewal fees in different ways: some use flat fees while others calculate the fee amount based on the weight of the vehicle while still others assess the fee based on the value of the car. In the states that fall into the last category, taxpayers can include the amount paid in their itemized deductions as long as the fee is assessed annually. Annual property taxes based on the value of the car can also be included.
State Income or Sales Tax
Taxpayers who itemize deductions have the option to choose either to deduct their state income or state sales tax payments. While state income tax often yields a greater deduction for many people, a sales tax deduction may be the better choice for those who make a large purchase in the past year such as a vehicle, boat, or mobile home.
Medical Expenses
Following the 2018 tax year, taxpayers can now deduct medical expenses that exceed 7.5% of their adjusted gross income. The IRS also allows deductions for mileage and other travel expenses that are associated with your medical visits and home improvements that were made for medical reasons such as a wheelchair ramp, installing support bars, etc. Bear in mind that in the 2019 tax year, only costs exceeding 10% of a person’s adjusted gross income are deductible and any increase in the value of your home that comes as a result of the renovations must be subtracted from the deductible amount.
Mortgage Points and Property Taxes
Property taxes are a major deduction for homeowners, although the tax break is subject to a cap for state income, sales, and property taxes. Mortgage points that are paid as part of closing costs on a principal residence purchase can also be deducted.
Non-cash Charitable Giving
Many people are aware that cash gifts to charities are deductible, but not all taxpayers know that other charitable gifts are deductible as well. Donating goods to a local thrift store, for example, can be deductible as can expenses associated with volunteer work.
Taxpayers can also deduct 14 cents per mile driven to and from volunteer work for nonprofit organizations and any parking expenses or tolls paid as a direct result of this volunteerism.
You can’t, however, deduct your time or personal expenses incurred from volunteer work. For example, if you stop to pick up lunch on the way to a volunteer job, you cannot deduct the price of your meal.
College Tuition and Student Loan Interest
There are tax deductions and credits that can offset the cost of college: the American Opportunity Credit, the Lifetime Learning Credit, and a deduction for student loan interest.
Education tax credits and deductions can be claimed by a student as long as he or she has earned income and is no longer listed as a dependent on a parent’s tax form. Only the parent or child can claim an education deduction or credit so parents might find it beneficial to stop claiming children when they go to college so they can apply for a deduction or credit themselves.
Qualified Business Income
This tax deduction was created as part of the Tax Cuts and Jobs Act of 2017 and it allows certain self-employed individuals in sole proprietorships, partnerships, S Corporations, and limited liability corporations to deduct 20% of their business income from their personal taxes.
There are some limitations on which occupations are eligible for the deduction but a 20% deduction of business income is substantial enough that you should consult a tax professional’s assistance.
Child Care
Working parents may be eligible for a child and dependent care tax credit but it’s important that you retain the proper documentation to justify the deduction or credit.
Earned Income Tax Credit
This is a refundable credit which means that families with lower earned income can receive a check from the government even if they don’t owe any taxes. In order to be eligible for this credit, people must earn at least $1 and have at least one qualifying child. They cannot exceed certain income limits that will vary depending upon a person’s filing status and the number of children they have.
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