A Quick Guide To 2018 Tax Deductions — What’s Still Available, & What’s Gone
While tax reform isn’t exactly breaking news anymore, changes to the tax law will affect the way we file our 2018 tax returns. The changes are especially relevant when it comes to deductions, or those expenses we can write off to reduce our taxable income — and, in turn, our tax bills.
Curious about what’s still in and which deductions are now off the table? We’ve put together a simple breakdown to make tax time a little easier.
But first, answer this question:
Should you take the standard deduction?
The standard deduction — a static deduction anyone can claim — jumped from $6,350 in 2017 to $12,000 in 2018 for individuals and from $12,700 to $24,000 for married couples who file jointly. It’s your choice whether to go with the standard deduction or opt to itemize (or list out) all your individual deductions.
Aside from simply choosing the path that yields the most money saved, Sallie Mullins Thompson, a Certified Public Accountant and financial planner, says making sure you have all the right supporting documentation — such as a letter from a nonprofit confirming your charitable contribution — is crucial. Otherwise, your deductions could be disallowed.
Deductions You Can Claim for Tax Year 2018
If you think itemizing will save you the most money, here are some common deductions you can consider for this year:
1. Interest paid on your student loans
There was some worry that paid student loan interest would no longer be deductible under the new tax code, but the annual deduction is holding steady at up to $2,500 for 2018. One huge perk: It makes no difference whether you itemize your deductions or take the standard deduction: Anyone who qualifies under the income limits can claim this deduction.
2. Medical expenses that exceed 7.5 percent of your income
If your 2018 medical expenses exceeded 7.5 percent of your income, they’re considered tax deductible. (For 2019, that’ll bump up to 10 percent.) According to Thompson, qualifying medical expenses include things like insurance premiums, medical equipment, doctors’ bills and even home renovations that were made to accommodate a health issue.
3. Interest paid on your mortgage
If you purchased a home after December 15, 2017, you can still deduct interest payments made on your first $750,000 worth of mortgage loans — down from $1 million prior to the tax overhaul (which still applies to homeowners who bought before this date).
4. Interest paid on home equity loans
Previously, you could deduct up to $100,000 of interest paid on a home equity loan, regardless of what you used the money for. For 2018, you may still be able to deduct up to $100,000, but only if, when added to any regular mortgage interest, it doesn’t exceed the $750,000 or $1 million total limit (depending on when you purchased your home), Thompson says. Also, you must have used the money specifically for home improvements.
5. State, local and property taxes
Perhaps the most buzzed-about deduction tweak: If you live in a state where you’re on the hook for state, local and property taxes — including high-tax states like New York, New Jersey, and California — you can now only deduct up to $10,000. Before the latest tax reform, there was no limit on how much you could deduct.
6. Charitable donations
If you wrote a check, donated physical items (like clothes, furniture or household items) or even drove your car while volunteering for a charity, you can deduct that money. Again, just be sure you’ve got the records to prove it.
One note on future charitable donations: Since the standard deduction is much higher now — meaning it may not be worth it for most people to itemize — some experts recommend bundling a couple years’ worth of contributions into one. So instead of donating $1,000 per year for three years, consider giving $3,000 at once to increase the likelihood that it’ll make financial sense to itemize.
7. Money paid for repairs due to natural disasters
2018 was a rough year in terms of hurricanes, wildfires and other natural disasters. Affected taxpayers who’ve suffered losses can still deduct personal property losses that weren’t covered by insurance or other reimbursements or relief programs, but they must live somewhere that’s been designated a Presidentially Declared Disaster Area. If not, this deduction is now off the table.
8. Traditional IRA contributions
Unlike 401(k) contributions (which you can always subtract from your adjusted gross income) and Roth IRAs (which are never tax deductible but grow and can be withdrawn tax-free), you may be able to deduct money invested in a traditional IRA. To qualify, your income must be less than $63,000 or $101,000 for married couples filing jointly, if you’re also covered by a retirement plan at work (like a 401(k)). If neither you nor your spouse has access to work plan, there are no income limits.
Deductions That Have Been Eliminated for Tax Year 2018
Some popular tax deductions are now out of the tax code altogether. Here are the big ones, according to Thompson.
- Moving expenses for a new job. For tax year 2018, you cannot deduct the cost of a van, boxes and movers — unless you’re active duty military ordered to move.
- Miscellaneous job-related expenses. Previously, you could deduct unreimbursed job expenses, including car rentals and continuing education costs that exceeded 2 percent of your income.
- Fees for financial services. Individuals can no longer deduct the cost of working with investment advisors or tax professionals. One bright spot: Business owners may still be able to deduct tax prep on business tax forms.
- Personal exemptions. Taxpayers used to be able to subtract about $4,000 from their taxable income for each claimed dependent, but no more. The idea is that the higher standard deduction should make up for it, but that may not be the case for everyone.
This information is being provided for informational purposes only, and is not intended to provide, and should not be relied on for, accounting, legal or tax advice. You should consult your tax or legal adviser regarding such matters.
Read the original article on Grow. Copyright 2019. Follow Grow on Twitter.
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