While it’s true that the Trump Tax Reform has eliminated many deductions, there are, however, many tax deductions that can help save big bucks for you. Intrigued, are you? To make it a little easier for you, we’ve compiled a list of top money-saving tax deductions in 2018.
Keep reading if you want to save some money!
- Retirement Plan Contributions
Retirement plan contributions are one of the greatest ways of minimizing your tax liability, and the cherry on top is that they are totally deductible! Another advantage of retirement plans is that they are deemed as “above the line deductions” meaning that you can claim the deduction without itemizing the deductions. So, investing in IRAs and 401(k)s would be highly recommended. Roth IRAs are, however, not tax deductible since they are funded by post-tax dollars.
- Charitable Contributions
Yes, any donation or contribution you make to charitable organizations such as old age homes, hospitals, disaster relief programs, and the like, are eligible for deductions. You can claim deductions for charitable contributions along with other itemized deductions. However, you will have to maintain an accurate record of acknowledgment letters and receipts provided by the charitable institutions and disclose them before the IRS. While for the tax year 2017, taxpayers were allowed to deduct donations up to 50% of their income, the ceiling will be raised to 60% from the next tax year.
- State and Local Taxes
For certain states, the state/local taxes are higher than the federal income tax. Hence, the taxpayers residing in these states have to shell out a considerable portion of their paycheck in paying state and local taxes. The great news is that under the Tax Cuts and Jobs Act, taxpayers can deduct the state and local taxes paid in the previous year along with their other itemized deductions on Form 1040, Schedule A, for the year in which the taxes were paid. For the states that do not levy state income tax, taxpayers can claim deductions of their sales tax according to the 2017 Schedule A instructions.
The important thing to remember here is that you can deduct either your state income tax or your sales tax for any given tax year; you cannot deduct both in the same tax year.
- Home Mortgage Interest
If you are someone who has taken a home loan, then you’re in luck. As per the federal tax reform, you are allowed to claim deductions on home mortgage interest payments, provided you meet the norms under the IRS Publication 936. Individuals who have taken home loans prior to December 15, 2017, are eligible for home mortgage interest deduction up to $1 million. And for those who have taken loans after the specified date, the ceiling is $7,50,000.
Although mortgage insurance premiums also come under the mortgage interest deduction umbrella, they are, however, set to phase out commencing at $1,00,000 AGI for married couples filing jointly.
- Taxes On Real Estate
The tax rates on real estate are determined by the state laws. While some states may charge only a few hundred dollars on property tax, for some others, the property tax may exceed the mortgage interest payments. The good news is that property taxes are deductible in the same year they are paid or in the year the bank pays them from your escrow account on behalf of you. An important thing to keep in mind is that if you are paying property tax on a rental property, you must claim your tax deductions on Schedule E (Supplemental Income and Loss) along with your rental expenses.
Now that you know about these money-saving tax deductions, it’s time to plan your taxes accordingly and take home a bigger paycheck. You can thank us later!
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