The 2017 Tax Cuts & Jobs Act (TCJA) nearly doubled the standard deduction to $12,000 for single filers, $18,000 for heads of household and $24,000 for married filers. While many taxpayers will use the new, higher standard deduction when filing this year, most states (including Alabama) have not made significant changes to their taxes. So, before you throw away your mortgage statements and charitable contribution statements, consider that you may really be throwing away part of your tax refund.
Here are 18 key deductions to keep in mind:
Key business deductions can give your refund a big boost:
1. Qualified Business Income Deduction – this is a business owner’s best friend. You can deduct up to 20% of your company profits if you own a pass-through business, and the IRS just clarified that rental real estate is included. If you own a small business, do not file your taxes without this!
2. Self employment taxes – you can deduct 50% of your self-employment taxes.
3. Self employed medical insurance – you can deduct the full value of medical/dental/vision insurance premiums if you are self employed and pay these costs.
Adjustments to income do not require you to itemize deductions:
1. Retirement plan contributions – your IRA contributions remain deductible, and you have until April 15 to deposit. You can even take your tax refund and deposit it into your IRA. Roth IRAs remain nondeductible.
2. Student loan interest – deductible up to $2,500, but only for single taxpayers with up to $65,000 or married taxpayers with up to $135,000 of modified adjusted gross income.
3. Educator expenses – you can still deduct up to $250 in educator expenses
Key itemized deductions may still inflate your state tax refund if you take the larger federal standard deduction:
1. Charitable contributions – the TCJA actually increased the limit to 60% of your adjusted gross income instead of 50%. Consider bunching charitable contributions in a single year, then taking the larger standard deduction in the following year, to maximize your refund. You may also want to think about setting up a Donor Advised Fund (Google search this!)
2. Mortgage interest – you can deduct the interest on up to $750,000 of your home mortgage debt for loans taken out after December 15, 2017. If the loan is older, the prior $1 million limit still applies.
3. Home equity loan interest – now only deductible if you use the loan for your home or related improvements (houseboat – yes; fishing boat – no)
4. Property taxes – together with your state and local taxes, limited to $10,000
5. Medical/Dental costs – deductible above 7.5% of your adjusted gross income for 2018.
6. Automobile ad valorem taxes – don’t forget to snap a photograph of your car registration. This is a commonly overlooked deduction that can pad your refund.
Tax laws are complicated and there are limits and nuances to each item listed above, so it’s important to keep in mind that your federal and state taxes have different rules.