Filing your tax return is going to feel a little different this year under the new tax code—especially where deductions are concerned.
These legal “loopholes” effectively lower your taxable income and slash your tax liability (i.e., how much you owe when all is said and done).
Under the new rules, the standard deduction—which is open to all taxpayers—has almost doubled. Individuals can now deduct $12,000, and married couples filing jointly $24,000. Other tax breaks have been reduced or eliminated. That one-two combo makes it more likely that you’ll take the standard deduction instead of itemizing.
The good news is that there are a number of "above-the-line" deductions and credits you may still be able to stack on top of the standard deduction to save hundreds—or even thousands, depending on your situation. Here are six to check out:
The slight silver lining of staying on track with those student loan payments: You may be able to deduct interest paid, up to $2,500. Just be aware of income limitations on this break, says Robert Westley, a certified public accountant and vice president at Northern Trust Company.
The portion of interest that’s deductible starts dropping once taxable income reaches $65,000 for single individuals, and $135,000 for married couples filing jointly. Once taxable income passes the $80,000 mark ($165,000 for married filing jointly), you’re no longer eligible.
There’s still a window of opportunity to put money into certain retirement accounts and have that count as a tax break for 2018. You may be able to write off contributions made to a traditional IRA, or a SEP IRA if you're self-employed, says April Walker, lead manager of tax practice and ethics for the American Institute of Certified Public Accountants.
"If you're able to do this, you can contribute up until the April 15 filing deadline and receive that deduction for your 2018 return," she says.
Just make sure to tell your plan administrator that the money should count toward 2018, not 2019. And hold off on filing your return until you’ve made that contribution.
The so-called Savers Credit offers an additional tax break for contributions to retirement accounts such as an IRA or 401(k). You may be able claim 10 percent, 20 percent or 50 percent of your contributions, for a maximum credit of $2,000 ($4,000 if married filing jointly).
But there are caps on taxable income to qualify: Single filers who make more than $31,500, and married couples filing jointly who earn more than $63,000, aren’t eligible.
Retirement isn’t the only savings opportunity that’s still open. You also have until April 15, 2019 to contribute to a health savings account (HSA) and claim that as a deduction for 2018. HSAs have a triple tax advantage: Money you put in is tax deductible, it typically grows tax free and can be taken out tax free to cover qualified medical expenses.
To contribute for a given year, you have to be enrolled in a high-deductible health insurance plan. For 2018, individuals could deduct contributions up to $3,450 ($6,900 for families). Plus, folks age 55 and older get an extra $1,000 catch-up.
Just be sure to let your plan administrator know the contribution is for last year rather than this year—and wait to file until you’ve socked away that cash.
Divorced taxpayers may have heard that alimony is no longer deductible under the new tax rules. Yes…and no.
"For divorces that are finalized after December 31, 2018, alimony is no longer deductible, " says Westley. "But if your divorce decree was finalized before that date, and you've been paying alimony, you can continue to deduct that."
If you’ve been working for yourself over the past year, good news: The new tax rules have opened the door for certain small-business owners to slash their taxable income by up to 20 percent.
Eligibility for the qualified business income deduction is anything but simple, depending on the structure of your business, how much you make and what industry you’re in. "There's a whole set of complicated rules around it, " says Westley. Chat with your accountant to see if you fit the bill.
But the less you make, the easier it is to qualify. No matter what industry your small biz is in, you can take the 20 percent deduction if you have taxable income that's less than $157,500 as a single filer (or $315,000 if you’re married).
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