Americans love tax breaks.
In the past, everybody knew they could deduct mortgage interest, medical expenses over a certain amount, gifts to charity — even the cost of preparing their tax return.
Nonetheless, here are some credits and deductions you should not overlook. Some save you money if you itemize, but others are available even if you do not.
If you itemize, you can deduct the value of any cash or property donations to a legitimate charity, although you’ll need receipts.
That’s common knowledge, but here’s something that isn’t: Volunteers can deduct 14 cents per mile traveled to and from charity work, plus out-of-pocket expenses from that work, including supplies and required uniforms. (Your time isn’t deductible.)
For more details, check out IRS Publication 526.
2. State taxes
This tax break is not as generous as it once was. In the wake of 2017’s Tax Cuts and Jobs Act, taxpayers who itemize can deduct state individual income, sales and property taxes up to a limit of $5,000 or $10,000, depending on their tax filing status.
So, while this tax break has been trimmed back under tax reform, it’s still valuable to many — especially residents of the seven states with no state income tax, which are:
3. Child tax credit
As we reported last year, not only did the child tax credit survive tax reform, it also became more generous. As we explain in “The 7 Most Valuable Deductions and Goodies That Survived Tax Reform“:
“The new rules double the credit to $2,000 per child. However, the refundable part of the credit cannot exceed $1,400. The tax overhaul also makes this credit available to more families.”
Remember, a credit is worth a lot more than a deduction: A credit reduces your taxes dollar for dollar, whereas a deduction only reduces the income you’re taxed on.
For example, if you’re in the 25 percent tax bracket, a dollar of deduction reduces your tax by 25 cents. But a dollar of credit reduces your taxes by a full dollar.
Retirement plan contributions often qualify for a deduction, but they also can net you a credit if your income is relatively modest.
It’s called the Retirement Savings Contribution Credit or Saver’s Credit, and you may be eligible for it if you made contributions to an IRA, 401(k) or other qualified retirement plan.
We recently reported in “Most Workers Don’t Know This Retirement Tax Credit Exists“:
“If you’re eligible for it, the credit is worth as much as 10 to 50 percent of your retirement plan contributions, according to the IRS. The maximum dollar amount of the credit is $2,000 — or $4,000 for married people filing joint tax returns.”
To be eligible for the Saver’s Credit for tax year 2018, you must have had an adjusted gross income of no more than:
$63,000 for married people filing jointly
$47,250 for people filing as heads of household
$31,500 for all other taxpayers
Knowledge is power and lower taxes.
The American Opportunity Tax Credit is a great way to lower your taxes if you are attending school. You can claim the credit for eligible education expenses during your first four years of higher education. According to the IRS:
“The amount of the credit is 100 percent of the first $2,000 of qualified education expenses you paid for each eligible student and 25 percent of the next $2,000 of qualified education expenses you paid for that student.”
This credit is especially valuable because it’s partially refundable, meaning you can theoretically get more money back than you paid in. If the credit brings your tax down to zero, 40 percent of the remaining amount of the credit — up to $1,000 — is refunded to you.
6. Medical expenses
Because of income limitations, medical expenses are tough to deduct. But do the math if you had big bills last year. This is another deduction that tax reform made more valuable — temporarily.
For both the 2017 and 2018 tax years, you can deduct medical expenses that exceeded 7.5 percent of your adjusted gross income. Before that, you could not deduct expenses until they exceeded 10 percent of income.
However, Uncle Sam’s newfound generosity has limits — under tax reform, the threshold will jump back up to 10 percent when you file your taxes next year.
7. Health savings account
Tax reform’s changes to the tax code did not eliminate or curb the deduction for health savings accounts, which allow you to deposit a certain amount of pretax earnings each year that you can use to reimburse yourself for eligible health care expenses.
Individuals with an eligible high-deductible health insurance plan can deduct $3,450 from their 2018 tax return. That amount jumps to $6,900 for families.
Know something we missed? Your fellow readers would love to hear about it. Post a comment below or on our Facebook page.
Chris Kissell contributed to this report.
This article was originally published on MoneyTalksNews.com as 'Did You Miss These 7 Tax Credits and Deductions?'.