For those who still need to file their 2017 tax return, time is running short. However, in the final rush to finish up forms, you should be careful not to miss any write-offs that could save you money.
From state taxes to child care expenses, there are plenty of ways to reduce your federal tax obligation. Here are 10 credits and deductions you shouldn’t discount.
[See: 7 Most-Missed Tax Deductions and Credits.]
1. State income or sales tax. Taxpayers who itemize deductions can choose to deduct either their state income or state sales tax payments. While state income tax may provide the bigger deduction for many people, Paul T. Joseph, an attorney and CPA in Williamston, Michigan, says a sales tax deduction might make more sense for those who purchased a vehicle or boat last year. “Some of these cars are pretty darn expensive,” he says, and high-end cars can mean significant sales tax.
What’s more, people shouldn’t miss deducting tax payments made last year for previous tax years. “Often times, filers only include taxes paid in the current year,” says Brian Wainscoat, CPA and tax specialist at online investment advisory firm Personal Capital. “Don’t forget to include those state income taxes paid [last year] on the balance due for the prior year tax return.”
For the 2017 tax year, taxpayers can take an unlimited deduction for their state income or sales taxes. However, for 2018, the deduction for sales, income and property tax deductions is capped at $10,000.
2. Value-based car registration fees. States have a variety of methods to assess registration renewal fees for vehicles. Some assess flat fees while others calculate the amount based upon the weight of a vehicle. These fees are not deductible. However, other states, such as Michigan and California, assess a fee based on the value of a car. In those states, taxpayers can include the amount paid in their itemized deductions.
3. Moving expenses. If you moved for a job in 2017, you may be able to deduct relocation expenses. These include mileage, storage and lodging costs incurred while traveling.
In order to qualify for the deduction, the move has to meet IRS criteria regarding distance and the timing of your move as it relates to the start of your new job. “Basically, it says you can’t move from one neighborhood to the one next door,” says Dane Dickler, tax partner at accounting firm EisnerAmper in Iselin, New Jersey. Going forward in 2018, this deduction will only be available to active duty military members who move because of a permanent change of station.
4. Medical expenses. For the 2017 and 2018 tax years, taxpayers could deduct medical expenses that exceeded 7.5 percent of their adjusted gross income. In addition to out-of-pocket costs, the IRS allows people to deduct mileage or other travel expenses associated with medical visits.
Most people with routine health care needs aren’t likely to spend that much. “However, if you paid for an expensive, qualified medical procedure, long-term care services or assisted living, these expenses may put you over the threshold where you qualify for an itemized deduction benefit,” Wainscoat says.
In the 2019 tax year, the threshold will increase and only expenses in excess of 10 percent of a person’s adjusted gross income will qualify for a deduction.
5. Noncash charitable giving. The deduction for cash gifts to charities is well-known, but not all taxpayers are aware they can deduct other charitable gifts as well. Donations of goods made to a local thrift store can be deductible, as can expenses associated with volunteer work. “If you’re a Girl Scout leader and driving kids all over, those [miles] are deductible,” Joseph says.
However, not everything associated with volunteer work is deductible. “You can’t deduct your time,” says Davey Quinn, vice president of investments for online financial advisory firm United Income. You also can’t deduct personal expenses not directly related to your volunteer work. For instance, if you stopped by a restaurant on the way to a volunteer opportunity, you can’t deduct the cost of lunch.
[See: 10 Tax Breaks for People Over 50.]
6. Mortgage points and property taxes. Property taxes are a major deduction for many homeowners, and taxpayers get an unlimited deduction for them in 2017. However, starting in 2018, there will be a $10,000 cap on deductions for state income, sales and property taxes.
However, homeowners may overlook some other deductions associated with their property. “When you buy or sell a home, there are some deductions that are not reported on the traditional IRS reporting Form 1098,” Wainscoat says. Instead, these deductions can be found on the closing statement for a home purchase or refinance. They include mortgage points paid and real estate taxes included in the closing costs.
7. Unreimbursed employee expenses. Some costs associated with your job may be deductible as well. “You obviously can’t deduct the cost of a suit,” Dickler says, “but if you have a uniform, that can be deducted.”
There may be other costs associated with a job that can provide a write-off too. “It might just be running out to the grocery store because we’re out of coffee at the office [that is deductible],” Joseph says. On their own, these small expenses don’t seem like much, but Joseph says they can add up to a significant amount over the course of a year.
Like some other deductions, the ability to write-off unreimbursed employee expenses has been phased out for the 2018 tax year. Dickler notes that workers with significant out-of-pocket costs may want to approach their employer about reimbursement or a raise to compensate for the lost deduction.
8. Traditional IRA contributions. IRA contributions are unique when it comes to taxable deductions. While taxpayers must have paid for other expenses in 2017 to claim a deduction, they can make a traditional IRA contribution as late as April 17, 2018, and still deduct it on their tax forms.
For the 2017 and 2018 tax years, workers younger than age 50 can contribute up to $5,500 per tax year to an IRA, while those age 50 or older can make a $6,500 contribution to a traditional IRA.
9. College tuition and student loan interest. The government provides several tax deductions and credits intended to offset the cost of college. These include the American Opportunity Credit, the Lifetime Learning Credit and a deduction for student loan interest. While students may be aware of the incentives, they may not know if they qualify for them. “What they don’t realize is they can deduct interest even if their parent paid the loan,” Quinn says.
Education tax credits and deductions can be claimed by a child so long as he or she has earned income and is not listed as a dependent on a parent’s tax form. Only the parent or the child can claim an education deduction or credit. However, for affluent households, where the total income makes families ineligible for education credits, it could be beneficial to stop claiming children in college, so they can apply for a deduction or credit themselves.
10. Child care. Parents who work may be eligible for a child and dependent care tax credit, and that’s not the only day care expense they may qualify for. “Another thing people don’t realize is if they send their kid to a day camp, they can claim that as a qualified expense,” Dickler says.
For child care and any other tax write-offs, it’s essential to have proper documentation to justify the deduction or credit. Also, while it affects a relatively small number of people, high-income families should be wary of inadvertently triggering the alternative minimum tax as a result of their write-offs. “We’ve had people trigger the alternative minimum tax because they have too many deductions,” Joseph says. If you’ve been hit with this tax, it may be wise to consult with a financial professional to determine the cause.
[See: 10 Smart Ways to Spend Your Tax Refund.]
However, for most people, more tax write-offs means a smaller tax bill. Check with your accountant or review your records to ensure you haven’t overlooked these deductions and credits or other money-saving tax incentives.
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