Get your to do list out and take some action to reduce your 2018 taxes now! Although taxpayers might be hurriedly finishing their 2017 tax returns before the e-file deadline, some tax deductions will not be there for the next tax season due to the Tax Cuts and Jobs Act. (TCJA) Ultimately, the design of the new tax reform is to lower taxes for individuals of all income groups until 2025. Bear in mind that along with that idea, many individuals who itemize their deductions are worried about the tax turmoil they’ll face when filing with each capped or eliminated deduction.
Did you know that can take steps in 2018 to decrease your taxes for next tax season? Here’s a few tax tips for you.
Rack up your medical receipts.
For taxpayers who are ridden with medical expenses and go beyond the standard deduction, they can itemize their expenses as long as they have documentation. Thankfully, the TCJA didn’t eliminate the medical expenses deduction. You now can deduct 7.5% of your AGI as medical expenses in comparison to our previous 10%. This counts for your 2018 taxes, so if you’re visiting the doctors office frequently and have stacks of medical expenses, you can go ahead and report them. Keep in mind, this deduction will revert back to its 10% limitation in 2019.
For example, if you have an AGI of $20,000, your limitation of expenses will now be $1,500. Therefore, if you have $3,000 in medical expenses, you can claim $1,500 as a deduction. Here are the calculations:
$20,000 x 7.5% = $1,500
$3,000 – $1,500 = $1,500
Be advised, you can only deduct qualified expenses such as payments for prescription medication, insulin, inpatient treatment, services for the physically disabled and more. For more information on what deductible medical and dental expenses are, click this IRS link.
Generosity pays off.
Stick your hands in your closet or raid your garage to find clothes and items that you no longer use. In the case that you donate property, you can deduct the fair market value of the property as long as it did not appreciate in value. When you’re itemizing deductions, charitable donations come in handy. It might just help exceed your standard deduction. In fact, your percentage limitation increases to 60% of your adjusted gross income in comparison to 50% in 2019.
Here are some guidelines if you’re planning on donating this year by clicking here.
Along with age comes advantages!
Contributing to your IRA or 401(k) is important for the 2018 tax season and you can start now! Your tax deduction comes into play as soon as you contribute to either plan which could give you a helpful tax break that you’ve been waiting for.
Since 401(k) contributions are pretaxed which means that it is excluded from your taxable income. Until you withdraw from the account, you will not have to pay taxes. For instance, before any other deductions or credits, if your salary is $80,000 and you contribute $10,000 to your 401(k), your taxable income will be reduced to $70,000.
Attention future homeowners.
Whether you’re thinking of buying a house or if you’re currently a homeowner, the mortgage interest deduction is for you. Under the TCJA tax reform, if you purchased or improved your home after December 14, 2017, you can deduct your mortgage debt to $750,000.
That being said, for taxpayers who purchased their home on December 14th or earlier can deduct interest based on the old cap which was up to $1 million in debt. Although the interest on home equity loans will no longer be available in 2019, you still have a chance to take the home mortgage interest deduction.
Take advantage of your credits!
Tax credits are either refundable or nonrefundable. A refundable tax credit will grant you a refund if it exceeds what you owe in taxes and a nonrefundable credit can only bring your tax liability to zero. It’s as simple as earning below a certain income threshold, and meeting requirements. For the Earned Income Credit, if you have low to moderate income you are eligible to claim this credit. If you have out of pocket tuition expenses, the Education Credit is for you.
You might want to look for some extra help when it comes to a hectic schedule because of your kids. Luckily, the tax reform doesn’t affect dependent care expenses. Once you hire someone who isn’t your spouse, ex-spouse or your other child, you can claim a tax deduction using the Child and Dependent Care Credit.
This means business.
For self employed taxpayers, take advantage of your business expenses even if you work from home. This means that you should keep all documentation of your expenses from office supplies, client dinners, travel, rentals, licenses, and any other expenses that serves a purpose for your business.
With RapidTax, your Schedule C is in a format with a variety of sections so all you need to do is enter your expenses. We even calculate your home office deduction for you after you enter in your tax information!
Here’s a quick recap of the TCJA.
Tax code can be complex but RapidTax is here to make it easy for you. The TCJA eliminates and limits several important tax deductions that might affect you in until 2025. As a reminder, below you will find some tax options that are no longer available:
- Alimony deduction
- Personal exemption
- Casualty and theft losses (Not including cases of natural disaster)
- Employee job expenses (Excluding active military members’ moving expenses)
- Tax preparation fees
- Tuition and fees deduction
For more information, feel free to read our TCJA blog by clicking here!
RapidTax skips tax jargon.
For current tax returns, you can e-file your tax return with us! We even provide prior year tax forms for you to paper file and mail to the IRS. All you need to do is create an account, enter in your income statements, tax deductions, credits and submit your account! The new tax reform can make filing your taxes confusing but our representatives are here to make it simple for you!