Tax season is probably one of the most stressful times of the year. You want to be a good citizen and you want to protect your credit score by filing your taxes but because you want to get it done and over with the soonest possible time, you end up paying taxes that takes a huge chunk out of your earning.
There is this tax reform bill called the Tax Cuts and Jobs Act (TCJA) of 2017 that comes useful if you are filing an individual income tax. One may find that there are fewer deductions because of TCJA. But you need to look closer because while standard deduction are fewer, there are other itemized tax deductions, commonly overlooked, that could have given you a healthy refund.
You need to sit down and take time to check on items that could save you a lot of money.
What are these itemized deductions that most people often overlook?
Itemized deductions allow taxpayers to deduct more from their adjusted gross income than they could by using the standard deductions. There are however limits and you need your expenses be qualified before you can claim an itemized deduction that could reduce your final tax bill dramatically.
1. Charitable contributions
This is an itemized deduction that can help you get a tax refund. A gift or a donation to a charitable contribution may qualify for a deduction.
The IRS says that you can deduct ‘contributions of money or property you make to or for the us of a qualified organization. A contribution is “for the use of” a qualified organization when it is held in a legally enforceable trust for the qualified organization or in a similar legal arrangement.”
One may deduct a maximum of up to 60 percent of one’s adjusted gross income. It is adjusted from last year’s 50 percent.
The organization that you made the contribution to must be a qualified institution.
To verify if the institution is accredited by the IRS, you may visit the IRS website and search for it within the website.
You need to be able to show a proof of your contribution like a written receipt, bank and payroll deduction.
Even non-cash donations are also deductible at fair market value. If your non-monetary donations are more than $500, you may fill out the IRS Form 8283 for your taxes to claim your deduction.
2. Retirement Plan
An IRA or the Individual Retirement Arrangement (IRA) is a personal savings plan that gives you tax advantages for setting aside money for retirement.
The IRS says on its website that the tax advantages of an IRA are:
– Contributions you make to an IRA may be fully or partially deductible, depending which type of IRA you have and on your circumstances; and
– Amounts in your IRA (including earnings and gains) aren’t taxed until distributed.
According to the IRS, if you are covered by a retirement plan at work, your deduction for contribution to a traditional Individual Retirement Arrangements or IRA is reduced or phased out if your modified Adjusted Gross Income is:
– More than $103,000 but less than $123,000 for a married couple filing a joint tax return of a qualifying widower.
– More than $64.000 but less than $74,000 for a single individual or head of household, or
– Less than $10,000for a married individual filing separate returns.
The rates vary certain married individuals.
You can check out a more detailed explanation here
3. Mortgage Interest, Points and Insurance
You can deduct home mortgage interest if you file a Form 1040 and itemize the deduction and if the mortgage is secured debt on a qualified home, which you own.
According to the IRS, all home mortgage interest can be fully deductible depending on the date of the mortgage, the amount of the mortgage and how you use the mortgage proceeds.
4. State and Local Taxes
Each state has its own set of tax requirements. There are state taxes that will be higher but not all states have income tax. And various state and local taxes paid in 2018 can be deducted either as income taxes or sales taxes.
There are, however, limitation on the deduction for state and local taxes as you cannot deduct more than $10,000 of the total state and local taxes including income taxes. The limitation on the deduction for home mortgage interest is you may deduct only in the first $750,000. There is also no deduction for foreign taxes paid for real estate.
You can file this using the Schedule A and you can find a more detailed instructions here
5. Personal Property Taxes
A personal property is a movable property. Compared to real estate, these are ‘movable’ like motorcycles, boats and vehicles.
Personal Property Taxes are imposed based on the value of one’s properties.
But if you itemize on your federal return, you can certainly claim a deduction.
You can find it in the itemized deduction on Schedule A of the federal tax return. This is however, limited with an annual federal cap of $10,000.
The tax must be based on the value o the property, it must be imposed annually and must be imposed on personal property. If you have only been taxed once before, like during the time of purchase, it will not qualify.
6. Student Loan Interest Deduction
For anyone saving up or paying for education, you can enjoy tax benefits.
Anyone with qualified student loans in 2018 can get a deduction of up to $2,500.
Those with Modified Adjusted Gross Income (Magi) must be less than $80,000 for single individuals and $165,000 for married couples filing together. This is not available for married people filing separately.
7. Health Savings Account
Working just lika an IRA, you make contributions to the Health Savings Accounts and the contribution is used for qualified medical purposes. If accompanied by a high-deductible health plan and used for qualifying medical expenses, it is tax-free .In 2018, monthly contributions were $3,450 for individuals, $6,900 for family and $1,000 for anyone 55 years old and older.
8. Medical and Dental Expenses
Medical expenses means the cost you paid for getting diagnose, getting the cure, treatment and prevention of diseases recognized by the medical community.
If you itemize your expenses, the IRS allows you to deduct a portion of your expenses that was dedicated to yourself and your dependents.
In some cases of self-employed people, the deductions could be up to 100 percent.
9. Self-Employment Expenses
If you are self-employed you get to deduct several items from your payroll taxes.
You can actually deduct half of your payroll taxes being an ‘employer.’ Also deductible are retirement contributions, health insurance and household expenses.
Look at this list when you file your taxes and make sure you make use of them if you qualify for it. Knowing these could help you get huge refunds and saving you a lot of money.
