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Commonly Overlooked Deductions That Could Lower Your Taxes

Tax deductions-01

In the coming weeks, you will likely start pulling together everything you need to file your 2018 tax return. As you do, you may be looking for some deductions that can help lower your overall tax bill.

Here are a few of the most valuable, and also most overlooked, tax deductions. Keep in mind that you’ll need to itemize deductions when filing your return in order to benefit from most of these deductions.

Taxes You Paid

The most common deductible taxes for most people are state and local income taxes, sales taxes, and real and personal property taxes. The latter includes taxes paid on your primary residence and ad valorem taxes paid on personal vehicles.

You can deduct either sales taxes or state and local income taxes you paid last year, but not both. An IRS calculator makes it easy to come up with a figure for sales tax deductions without having to keep and store paper receipts all year long. Note that the Tax Cuts and Jobs Act (TCJA) capped the total annual deduction for sales and property taxes and state and local income taxes at $10,000.

Also, if you’re self-employed, you can deduct half (or 7.65 percent) of the Social Security and Medicare taxes you pay, whether you itemize deductions or not.

Charitable Donations You Made

You can deduct donations of cash, property and securities that you made last year to qualified charities. Deductible property includes things like vehicles, clothing and household items. If your contribution adds up to more than $250, ask the charity for a written acknowledgement if they don’t send you one.

In addition, you can claim a 14-cents per mile deduction for any driving you did while volunteering for a charity last year. You can also deduct any parking fees and tolls you paid as a charitable volunteer.

Note that your charitable deduction could be limited based on how much money you make. Your charitable deduction is also generally limited to 50 percent of your adjusted gross income (AGI), or 20 percent or 30 percent of AGI for some kinds of charitable donations and organizations.

Interest You Paid

Some types of interest paid are deductible while other types aren’t. For example, personal interest — such as interest paid on car loans and credit cards — is not deductible. Among the types of interest that you can deduct are:

  • Mortgage interest — If you bought a new home last year, you can deduct the interest you paid on up to $750,000 in mortgage debt. If you bought your home before December 14, 2017, you can deduct the interest you paid on up to $1 million in mortgage debt.
  • Student loan interest — You can deduct up to $2,500 in interest that you paid last year on loans you took out to pay for your children’s college tuition and other qualified higher education expenses.
  • Investment interest — If you borrowed money last year to buy taxable investments, you can deduct the interest paid on these loans, up to the amount of net investment income. If you paid interest above this amount, you can carry it forward to future years.

Healthcare Expenses You Incurred

You may be able to deduct medical expenses you paid last year, depending on how large these expenses were. Any amount of qualified healthcare expenses that exceeds 7.5 percent of your AGI is deductible. Note that in 2019, this goes up to 10 percent of your AGI.

You can also deduct any health insurance premiums you paid with after-tax dollars. If you are self-employed, you can deduct all of your health insurance premiums, whether you itemize deductions or not.

More Miscellaneous Deductions

Here are a few more commonly overlooked deductions:

  • Tax preparation fees
  • Subscriptions to professional journals
  • Moving expenses (if a new job is in a new location)
  • Union and professional dues
  • Education expenses (if job-related)
  • Investment management fees
  • Gambling losses (up to the amount of gambling winnings)

The Clock is Ticking

The tax filing deadline this year is April 15, which will be here before you know it. So don’t delay — plan to meet with a tax professional soon to discuss whether you could benefit from these and other tax deductions.

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