Congratulations! You made it through another year. What better way to start 2018 than with 18 great money-saving tax deductions? Use them to save money on your 2017 taxes while you still can, because this is the last year for many of them due to the Tax Cuts and Jobs Act of 2017 (TCJA).
1. Charitable Donations: Donations to a qualified charitable organization are deductible (qualified organizations should be able to give you proof of status). Make sure that you can supply all necessary receipts or acknowledgement letters to the IRS. If you receive any goods or services in exchange, subtract the value of the goods and services from the contribution amount.
For tax year 2017, you may deduct donations worth up to 50% of your income. Starting next year, this cap will be raised to 60% per the TCJA. The new law eliminates your ability to deduct donations made to a college in exchange for the right to buy athletic tickets.
2. Medical and Dental Expenses: You can deduct the amount of your unreimbursed medical and dental expenses that exceeds 7.5% of your Adjusted Gross Income (AGI). For example, if your AGI is $50,000, you may deduct the portion of your medical expenses over $3,750. Under the TCJA, this threshold will increase to 10% of your AGI in tax year 2019.
3. Performing Artist Expenses: Are you the stereotypical starving artist? Certain unreimbursed business expenses of performing artists, as well as reservists and fee-basis government officials, are handled separately from other deductible business expenses. See the instructions for Form 2106, "Employee Business Expenses," for details. This tax season is the last time you will be able to claim this deduction, as it has been eliminated completely under the TCJA.
4. Tax Preparation Fees: Generally, you can deduct fees that you pay for tax preparation in that year. This means that on your 2017 return, you can deduct the fees incurred in 2017 for preparing your 2016 return. Fees for tax preparation software, tax publications, and electronic filing fees are all included, but the TCJA has also eliminated this deduction starting in tax year 2018.
5. Mortgage Interest, Points, and Insurance: The mortgage interest that you pay on your home, as well as a portion of the points you paid to reduce your interest rate, may be deductible if you meet the criteria listed in IRS Publication 936, "Home Interest Mortgage Deduction." This applies to mortgage debt of up to $1 million for home loans taken before 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 2017, but they are subject to phase-out beginning at $100,000 AGI (for married filing jointly status).
6. Home Equity Loans: Interest on home equity debt of up to $100,000 may be deducted in 2017. For next year, experts say interest on HELOCs should still be deductible provided that homeowners use the proceeds of the loan to make home improvements, and the first mortgage balance plus the HELOC does not exceed $750,000.
7. Gambling Losses: Was it a bad year for you at the racetrack but a good year with lottery tickets? Believe it or not, you can deduct gambling losses with sufficient documentation – but only to the extent that you offset other gambling winnings.
8. Real Estate and Personal Property Taxes: Generally, taxes that are levied through home ownership, such as real estate taxes are deductible.
9. State/Local Taxes: You can deduct your state and local taxes paid in the previous year, or you can deduct the sales taxes that you paid (preferable for states that levy no state income tax). If you choose to deduct sales taxes, consult the 2017 Schedule A instructions to get a baseline value and then add the tax on big-ticket items that were purchased during 2017.
Despite attempts to eliminate this deduction, the TCJA keeps it in place, but limits the total deductible amount of income, sales, and property taxes to $10,000, beginning in tax year 2018.
10. Job-Hunting Expenses: If you are looking for a new job within your present occupation and meet other criteria in IRS Publication 529, "Miscellaneous Deductions," you may deduct certain job-hunting expenses such as fees to employment agencies, even if you don't get a new job. Good luck with the job hunt, because thanks to the TCJA, you won't be able to deduct these expenses going forward.
NOTE: The following deductions have even greater value, as they are "above the line" deductions. These deductions are subtracted off your AGI directly and are available to you whether or not you itemize.
11. Moving Expenses: If you succeeded in the above job hunt and must move because your new job is at least fifty more miles away from your current home, you can deduct some moving expenses. See Publication 521, "Moving Expenses," for details. The TCJA eliminates this deduction for the 2018-2025 tax years.
12. Retirement Plan Contributions: Contributions to tax-deferred retirement accounts may be deductible. Roth IRAs are not since they are funded with post-tax dollars. This deduction has been kept in place by the TCJA.
13. Alimony: Amounts that you pay to a former spouse, excluding child support payments, may be deductible. See Tax Topic 452 for details. The alimony deduction remains in effect through 2018, but disappears for couples divorced in 2019 or after.
14. Health Savings Account Deductions: Your 2017 contributions to your Health Savings Account (HSA) are deductible, although employer contributions are not. To qualify, you must be covered by a high deductible health plan (HDHP) and have no other health coverage, except certain permitted coverage.
15. Self-Employment Expenses: As a self-employed person, you pay both the employer and employee component of payroll taxes. Fortunately, you get to deduct the 50% considered the employer portion. In some cases, you can also deduct retirement fund and health insurance expenses.
16. Home Office Deduction: You may be able to deduct some expenses for the business use of your home if there is a part of it that you use regularly and exclusively for work. To qualify, your home should also be your principal place of business, so even daycare providers may take this deduction. Refer to IRS Publication 587, "Business Use of Your Home" for details on how to calculate your deduction.
17. Educator Expenses: K-12 educators can deduct up to $250 in qualified and unreimbursed educational expenses. These can be items used in the classroom or payments for professional development courses taken within your field. The TCJA has not made any changes to this deduction.
18. Educational Deductions: You may be able to claim a deduction on student loan interest paid – but first see if you qualify for educational tax credits such as the American Opportunity Tax Credit and the Lifetime Learning Credit. Tax credits subtract directly and fully from your tax bill, compared to deductions that reduce your tax bill proportionally to your tax rate.
Take all the deductions that apply to you. If you need assistance, our tax professionals will be glad to help.
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