Like most Americans, you probably want to get through your taxes as quickly as possible. Since the Tax Cuts and Jobs Act (TCJA) was passed in 2017, fewer of us will itemize, and those who do may find fewer deductions available. However, do not rush through your return so quickly that you simply take the standard deduction and ignore deductions that can bring you a healthy refund. Consider these commonly overlooked tax deductions.
1. Charitable Contributions – You may not feel that you give enough to charity for it to matter, but every little bit helps when itemizing deductions. Any gift to a qualifying charitable organization may be deducted. The IRS website has an online search tool to verify the qualified status of any organization, but the receiving organization should be able to provide you with proof. For tax year 2019, you may deduct donations worth up to 60% of your income.
Make sure that you have written receipts or bank/payroll deductions for any contributions. Any non-cash donations such as clothing have to be deducted at fair market value. If your non-cash deductions are over $500 for the year, you must submit IRS Form 8283 with your taxes to claim your deduction. See IRS Publication 526, "Charitable Contributions", for further details.
2. Retirement Plan Contributions – Contributions to traditional IRAs and Simplified Employee Pension plans (SEPs) may be deductible. Roth IRA contributions are not deductible because they are made with after-tax dollars. You can still make contributions up to the tax filing date and apply them to the previous tax year as long as your total contributions are below the annual limits. See IRS Publication 590-A, "Contributions to Individual Retirement Arrangements," for details. The TCJA did not change this deduction.
3. Mortgage Interest, Points, and Insurance – The annual interest on your mortgage is deductible, along with any points paid on a new home to lower your interest rate. Generally, deductions for points must be spread out over the life of a loan, but there are a few exceptions that allow total deduction in the year of purchase. Further information is available in IRS Publication 936, "Home Mortgage Interest Deduction." Interest on mortgage debt of up to $1 million can be deducted for home loans taken before or on December 15, 2017, and mortgages of up to $750,000 taken after that date. Mortgage insurance premiums also qualify under the mortgage interest deduction through tax year 2020, but they are subject to phase out beginning at $100,000 AGI (for married filing jointly status).
4. State and Local Taxes – Various state and local taxes paid in 2019 can be deducted, either as income taxes or sales taxes paid (but not both). Generally, state income tax is higher, but not all states have an income tax. If you choose to deduct sales taxes, use the relevant tables in the Schedule A instructions to determine a baseline deduction amount, and then add the sales tax component of any big-ticket items purchased. The TCJA limited the total deductible amount of income, sales, and property taxes to $10,000.
5. Personal Property Taxes – You can deduct any personal property taxes that are paid on items such as automobiles or boats as long as the taxes are imposed annually and based on the value of the asset. This also falls under the $10,000 limit for income, sales, and property taxes per the TCJA.
6. Student Loan Interest Deduction – You can deduct up to $2,500 of interest you paid on a qualified student loan in tax year 2019. To claim this deduction, your Modified Adjusted Gross Income (MAGI) must be less than $85,000 for single filers, or $170,000 for married couples filing jointly. This deduction is not available if your filing status is married filing separately. For more information, read IRS Publication 970, "Tax Benefits for Education".
7. Health Savings Account (HSA) Contributions – You can contribute to an HSA tax-free if you have a high-deductible healthcare plan. Your withdrawals are also tax-free, as long as you use them for qualifying medical expenses. For tax year 2019, the monthly contribution limits were $3,500 for individuals or $7,000 for family coverage, with a $1,000 catch-up if you're 55 or older . You may still make HSA contributions for 2019 until April 15, 2020. Check the IRS instructions for Publication 8889 for more details.
8. Medical and Dental Expenses – Any unreimbursed medical and dental expenses over 7.5% of your Adjusted Gross Income (AGI) may be deducted. For example, with an AGI of $50,000, you can deduct the portion of your medical expenses that exceeds $3,750.
9. Self-Employment Expenses – If you work for yourself, you can deduct 50% of your payroll taxes – essentially the "employer" portion of your taxes. In certain cases, you may also deduct retirement contributions and health insurance expenses, as well as some household expenses if you have a home office.
The TCJA did away with the deduction for moving expenses until tax year 2026, except for certain active-duty members of the military.
Maximize your Tax Refund
The deductions for student loan interest, HSA contributions, and self-employment expenses are especially valuable since they are "above-the-line" deductions that directly lower your AGI. You can take such deductions whether or not you itemize.
Take the time to look over these and other potential tax deductions. They could be the difference between a good refund and a great one.
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