Tax time has officially started. That means, if you haven’t already, it’s time to gather up all your important tax documents and information. It might also be a good time to hire an experienced accountant. The Tax Cut and Jobs Act will play a huge role in this year’s tax season. So how will it affect you? Perhaps the biggest changes you need to be aware of are all the new policies for tax deductions and credits. If you’ve claimed a lot of deductions previously, then you really need to pay attention because things have changed.
To Itemize or Not to Itemize
However, if you’ve never itemized your deductions, then you probably don’t need to worry. You can just take the standard deduction like you normally would. In fact, this year, the standard deduction has nearly doubled so that’s even better news. For married couples filing jointly the standard deduction is $24,000. And for single filers, it’s $12,000. However, if you have numerous deductions, then itemizing might still be in your best interest. Of course, if your total deduction amount is not greater than $12,000 or $24,000, depending on your filing status, then taking the standard deduction still makes the most sense.
Changes to Deductions
For those who think they might have enough deductions to surpass the standard deduction thresholds, here is what you need to know. Pay close attention because the changes from the Tax Cut and Jobs Act could alter your plans.Here are some deductions you can include if you choose to itemize.
• Mortgage Interest – You can deduct mortgage interest on loans up to $750,000. Last year the threshold was $1 million.
• State and Local Income Taxes – state and local taxes are not completely off the board. You can still deduct up to $10,000 of state, local, and property taxes combined. Anything above that you cannot deduct.
• Property Taxes – that means if you own a home you can deduct your real estate taxes. But remember, the total deductible amount from state and local income taxes has dropped to $10,000.
• Medical Expenses – if your medical expenses surpass more than 7.5 percent of your AGI for 2019, you can deduct them.
• Charitable Giving – you can claim deductions on charitable giving up to 50 percent of your AGI.
There are other deductions you can take, but you don’t have to itemize to claim these deductions. They do still help to lower your tax bill. Some of these include:
• Health Savings Account Deduction – you can deduct the amount you contribute to an HSA, and the money grows tax-free.
• Self-Employment Taxes – you can deduct the employer part of your Social Security and Medicare tax if you’re self-employed.
• Self-Employed Insurance Premiums – if your spouse doesn’t have insurance through work, then you can deduct 100 percent of health insurance premiums for you and your family.
• IRA Contributions – you can deduct the amount you contribute to a traditional IRA.
• Educator Expenses – you can deduct up to $250 that you spend on teaching supplies.
If this all seems overwhelming, then now is a good time to seek the help of an experienced accountant. You work hard for your money. So make sure you keep every penny you deserve. Contact us today for help.
The post Which Tax Deductions Are Available This Tax Season? first appeared on Advisors to the Ultra-Affluent – Groco.