If you qualify for certain tax deductions, you may be able to reduce your adjusted gross income (AGI), which is used to calculate the amount of taxes you owe. A lower AGI generally means you’ll pay less in taxes, leaving more cash in your wallet for more pleasant endeavors.
Deductions: Standard or Itemized?
If you’re all about simplifying your taxes and making them as quick and painless as possible, you may have gravitated toward claiming the standard deduction in the past. Depending on your financial situation, this may still be the right approach. For 2018, the standard deduction is $12,000 for individuals ($24,000 for married, filing jointly), meaning you can knock your income down by $12,000 in one fell swoop.
If you think that you have more than $12,000 in potential deductions – such as from a combination of things like mortgage interest, state and local taxes, charitable contributions, and so on – then consider going through the exercise of itemizing deductions to see if you can secure a greater tax benefit.
Here are just 10 popular tax deductions you may be able to take on your 2018 tax filings:
1. Mortgage Interest deduction
Interest payments on a mortgage can be hefty, especially early in the life of a loan. To help make home ownership more affordable, the federal government introduced this deduction, reducing your AGI by the amount of mortgage interest paid on debt up to $1 million, or $750,000 beginning in 2018 for property purchased Dec. 15, 2017, or later.
2. Student Loan Interest Deduction
If you have student loans and made interest payments in 2018, you may be able to deduct up to $2,500 from your taxable income. Income limits do apply, and the benefit begins phasing out as income exceeds $65,000. It’s important to note that if the loan is in your name, but you are reported as a dependent on a parent’s taxes, then the deduction is not available.
3. Health Savings Account Contributions Deduction
For individuals and families who opt to participate in high-deductible health coverage, health savings accounts offer an opportunity to set aside dedicated funds for out-of-pocket costs. Contributions are tax-deductible (up to $3,450 for individuals and $6,900 for families) and are tax-free upon withdrawal if used for qualified medical expenses.
4. Medical Expenses Deduction
If you have significant unreimbursed medical expenses, you may be able to take them as deductions. For 2018, you must spend at least 7.5 percent of your AGI on medical expenses in order to qualify. As with any other deductions, be sure to keep all documentation should questions arise.
5. State and Local Tax Deductions
For residents in high income tax states or high property tax states, the federal government offers some relief by allowing a deduction of up to $10,000 ($5,000 if married, filing separately) for a combination of state and local taxes. Taxes could include those levied on property, income or sales.
6. IRA Contributions Deductions
Some taxpayers may be able to claim a deduction for contributions to a traditional IRA. However, the deduction – both its availability and its breadth – will depend on whether you or your spouse have a workplace retirement plan and on your income level.
7. Home Office Deduction
For those who use part of their homes exclusively and principally for conducting business, the IRS allows a deduction for a portion of the costs. A simple method provides for a deduction of $5 per square foot of space, up to 300 square feet. Another option is to calculate the actual expenses, allocating expenses in proportion to the office’s size relative to the home. Recordkeeping is a must, but taxpayers could get some relief with bills associated with the mortgage or rent, utilities, repairs and maintenance.
8. Charitable Contributions Tax Deduction
Contributions of cash or property to a qualified tax-exempt organization (as defined by section 501(c)(3) of the Internal Revenue Code) may be deductible. To get a benefit, you’ll first need to itemize your contributions. Be sure to keep any related receipts or documentation that you receive from the benefiting organization throughout the year, and for any gifts greater than $250, you’ll need a letter of acknowledgement from the charity.
9. Educator Expenses deduction
For school teachers or other types of qualified educators, the funds to cover classroom and school supplies often come out of their own pockets. If you’re in the profession, you should be able to deduct up to $250 of those types of expenses.
10. Gambling Loss Deduction
Finally, who knew Uncle Sam was a lucky charm in Vegas? You can deduct gambling losses from your income, but only to the extent of your winnings. In essence, if you want to deduct the $100 you spent on lottery tickets to win $100, you’ll first need to report your winnings. And, you can’t deduct more than you win.
Tax rules change every year, so for the latest information and eligibility requirements for these 10 tax deductions, please visit www.irs.gov for details. You’ll also find information about additional deductions that could apply to your situation. Be sure to consult with a certified public accountant or an accredited tax software product before filing your 2018 tax return.
