It is that time of year again, where we sit down and begin our tax preparation. Whether you work with you own CPA, have ARS complete or go at it alone, knowing what you can deduct will help you save every dollar you can. Remember, these rules may only apply to 2017 taxes and many of the common deductions will change for tax year 2018. If you have questions or want to set up an appointment for tax planning, please give your portfolio manager a call. We are here to help!
Updated for Tax Year 2017, TurboTax
1. Sales Tax
You have the option of deducting sales taxes or state income taxes off your federal income tax. In a state that doesn’t have its own income tax, this can be a big money saver. Even if you paid state taxes, the sales tax break might be a better deal if you made a big purchase like an engagement ring or a car. You have to itemize to take the deduction, but the IRS provides tables to use as a guide.
2. Health Insurance Premiums
Medical expenses can blow any budget, and the IRS is sympathetic to the cost of insurance premiums-at least in some cases. Deductible medical expenses have to exceed 7.5 percent of your adjusted gross income to be claimed as an itemized deduction for tax years 2017 and 2018. However, if you are self-employed and responsible for your own health insurance coverage, you might be able to deduct 100 percent of your premium cost. That gets taken off your adjusted gross income rather than as an itemized deduction.
3. Tax savings for teachers
It’s the rare teacher who doesn’t have to reach into her own pocket every now and then to purchase items needed for the classroom. While it may sometimes seem like nobody appreciates that largesse, the IRS does. It allows qualified K-12 educators to deduct up to $250 for materials. That gets subtracted from your income, so you can take advantage of it even if you don’t itemize.
4. Charitable gifts
Most taxpayers know they can deduct money or goods given to charitable organizations—but are you making the most of this benefit? Out-of-pocket expenses for charitable work also qualify. For example, if you make cupcakes for a charity fundraiser, you can deduct the cost of the ingredients you used to bake them. It helps to save the receipts or itemize the costs in case of an audit.
5. Paying the babysitter
You might be able to deduct the cost of a babysitter if you’re paying her or him to watch the kids while you volunteer to work for no pay for a recognized charity. The federal Tax Court has ruled that it’s OK to list the cost of a babysitter as a charitable contribution on your return, if you can document that while she or he was performing her duties, you were volunteering.
6. Lifetime learning
The tax code offers a number of deductions geared toward college students, but that doesn’t mean those who have already graduated don’t get a tax break as well. The Lifetime Learning credit can provide up to $2,000 per year, taking off 20 percent of the first $10,000 you spend for education after high school in an effort to increase your education. This phases out at higher income levels, but doesn’t discriminate based on age.
7. Unusual business expense
If something is used to benefit your business and you can document the reasons for it, you generally can deduct it off your business income. A junkyard owner, for example, might be able to deduct the cost of cat food that encourages stray cats to hang around and keep the mice and rats away. A bodybuilder got approved to deduct the body oil he used in competition.
8. Looking for work
Losing your job is traumatic, and the cost of finding a new one can be high. But if you’re looking for a job in the same field, you itemize your deductions, and these expenses exceed 2 percent of your adjusted gross income, any qualifying expenses over that threshold can be deducted. It may seem like a high bar, but those costs add up quickly-consider deducting the mileage you put on your car driving to interviews and the cost of printing resumes.
9. Self-employed Social Security
The bad news about being self-employed: You have to pay 15.3 percent of your income for social security and medicare taxes, the portions ordinarily paid by both employee and employer. But there’s one small consolation—you do get to deduct the 7.65 percent employer portion off your income taxes.