20 Ways to Cut Your Tax Bill
Have you completed your tax returns yet?
If not, there is still time to make sure that you claim every deduction for which you qualify.
Here are 20 common deductions:
1. Contributions to 401(k) and 403(b) accounts.
Contributions to these workplace accounts are automatically withdrawn from your paychecks, which will lower your taxable income.
2. Contributions to traditional IRAs.
You can obtain a deduction for contributions to traditional IRAs, SIMPLE IRAs and SEP-IRAs, but you won’t get an upfront tax deduction for contributions to Roth IRAs.
3. Health savings account contributions.
Money you put into health savings accounts is tax-deductible. The withdrawals are tax-free when the money is used for medical expenses.
4. Dental and medical expenses.
There’s a high hurdle to claim this deduction. Medical expenses for your household have to exceed 10% of your adjusted gross income. If you or a spouse are at least 65 years of age, you can claim the deduction if total medical expenses exceed 7.5%.
5. Medically-related renovations.
Home renovations are deductible if you make the improvements for medical reasons such as a wheelchair ramp.
6. Job search expenses.
If you itemize, you may be able to deduct your job-search expenses including mileage, parking, Uber/Lyft costs and job-search fees, if the search is in your current line of work.
7. Moving expenses.
Qualified moving expenses include costs of moving your belongings and traveling to your new residence. The standard rate is 19 cents per mile. You can deduct the cost of a motel, but not meals.
8. Mortgage interest.
You can deduct interest on loans of $1 million or less. You can only deduct interest on loans of up to $500,000 if you are married and filing taxes separately.
9. Mortgage points.
When purchasing a house, you can deduct the points, which are fees paid to the lender at the close of a sale in exchange for a reduced interest rate.
10. Home sale profit.
When selling a home for a profit, you can shelter $250,000 in capital gains or $500,000 for a couple filing jointly.
11. Local and state sales taxes.
You can deduct either state and local income taxes or state and local sales taxes. If you live in a state with no state income tax, you should deduct your sales taxes.
12. Local, state and foreign taxes.
On an itemized return, you can deduct local and state personal property taxes, as well as foreign, local and state real estate and income taxes.
13. Tax preparation fees.
To claim this deduction, the tax preparation fees must exceed more than two percent of your adjusted gross income.
14. Early withdrawal penalty.
If you get hit with a penalty for an early withdrawal from a retirement account or certificate of deposit, you could be eligible for a tax deduction even if you don’t itemize.
15. Health insurance for the self-employed.
Self-employed individuals can deduct the premiums they paid for medical and dental insurance, as well as long-term care insurance.
16. Investment fees.
You can deduct the advisory fees you pay financial professionals, as well as transportation fees to and from the advisor’s office.
If you are divorced, you can deduct alimony you pay your former spouse as long as you and s/he do not file taxes jointly. You can take the same deduction if you are legally separated and not living in the same residence. You don’t need to itemize to take this deduction.
18. Volunteer expenses.
As a volunteer, you can deduct such things as:
Mileage for volunteer activities.
Costs of hosting a party or fundraiser for charity.
Cost of a uniform and laundry expense.
19. Educational expenses.
You can claim up to a $2,500 tax credit per student in your family who is in college with the American Opportunity Tax Credit.
20. Earned income tax credit.
This tax credit is intended for low- and middle-income families, and is aimed at supplementing their income.