One Dozen Tax Breaks Still Around to Take Advantage of in 2019

One Dozen Tax Breaks Still Around to Take Advantage of in 2019

Were you shellshocked by your 2018 tax return and refund? Although April 15th will be behind us in a week or so, it might just be time to start thinking about your tax filing strategy for 2019!

The tax code contains over 170 preferences that benefit middle-income households, like the Earned Income Credit and the Child Tax Credit. Itemized deductions primarily benefit high-income households. This year, high-income taxpayers will claim 52% of the state and local tax deduction, 84% of the charitable donation deduction, and 60% of the mortgage interest deduction.

Still there is plenty of wiggle room for all – tax deductions and tax credits can be huge money savers if you know how they work – remember a deduction cuts the amount of income you’re taxed on, which can mean a lower bill. But a credit cuts your tax bill directly, and some are refundable. Here’s some of our favorites!

1. Student Loan Interest Deduction: Deduct up to $2,500 from your taxable income if you paid interest on your student loans. Be aware there are phase out limitations, but they have been raised for 2019.
2. Child And Dependent Care Tax Credit: Generally, it’s 20% to 35% of up to $3,000 of day care and similar costs for a child under 13, an incapacitated spouse or parent, or another dependent so you can work — and up to $6,000 of expenses for two or more dependents. The percentage you use depends on your income.
3. Child Tax Credit: In 2019, married couples filing jointly who make under $400,000 per year and single individuals, head of household, or married couples filing separately who earn less than $200,000 per year, will be able to take $2,000 per child as their Child Tax Credit, and $500 for a non-child dependent.
4. Earned Income Tax Credit: This credit can get you between $529 and $6,557 in tax year 2019 depending on how many kids you have, your marital status, how much money you make, and your investment income. It’s something to explore if your AGI is less than about $55,952. New legislation is pending on the EITC, click here:  Who Would Benefit From the Cost-of-Living Refund Act of 2019
5. Medical Expenses Deduction: Thanks to tax reform, you can deduct unreimbursed medical expenses that exceed 7.5 percent of your adjusted gross income for at least one more year. That threshold can be a high bar to meet, but it will go up to 10 percent for 2019 taxes.
6. Deduction For State And Local Taxes: You may deduct up to $10,000 ($5,000 if married filing separately) for a combination of property taxes and either state or local income taxes, or sales taxes.
7. Mortgage Interest Deduction: It cuts the federal income tax that qualifying homeowners pay by reducing their taxable income by the amount of mortgage interest they pay. The interest paid on primary mortgages is still deductible. The limit on the mortgage-interest deduction has been reduced to the interest on a maximum of $750,000 of new acquisition indebtedness. However, acquisition debt taken out before Dec. 16, 2017, is grandfathered in and subject to the $1 million limitations under the old law. The interest on a new or existing home-equity loan is not deductible unless the money is used to buy, build or improve the home that secures the loan.
8. IRA and 401(k) Contributions Deduction: You may be able to deduct contributions to a traditional IRA, and the IRS doesn’t tax what you divert directly from your paycheck into a 401(k). Add the Saver’s Credit too: This runs 10% to 50% of up to $2,000 in contributions to an IRA, 401(k), 403(b) or certain other retirement plans ($4,000 if filing jointly). The percentage depends on your filing status and income.
9. Health Savings Account Contributions Deduction: Contributions to HSAs are tax-deductible, and the withdrawals are tax-free, too, as long as you use them for qualified medical expenses. For 2019, if you have self-only high-deductible health coverage, you can contribute up to $3,500. If you have family high-deductible coverage, you can contribute up to $7,000. If you’re 55 or older anytime in 2019, you’ll be able to contribute an extra $1,000.
10. Home Office Deduction: Thanks to Tax Reform, for the tax years 2018 through 2025, you cannot deduct home office expenses if you are an employee. But the home office expense rules did not change for self-employed persons. They can continue to deduct qualifying home office expenses if using part of the home regularly and exclusively for business-related activity.
11. Self-Employment Expenses Deduction: There are many valuable tax deductions for freelancers, contractors and other self-employed people. Fortunately, 50% of your employment tax payment (effectively your “employer” contribution) is tax deductible.
12. American Opportunity Tax Credit and Lifetime Learning Credit: The American Opportunity Tax Credit lets you claim all of the first $2,000 you spent on tuition, books, equipment and school fees, plus 25% of the next $2,000, for a total of $2,500 (per student). With the Lifetime Learning Credit you can claim 20% of the first $10,000 you pay toward tuition and fees, books or supplies, needed for coursework for a maximum of $2,000. These two are similar but different. You can claim the American Opportunity Credit for the same student for no more than 4 tax years. There is no limit on the number of years for which you can claim a Lifetime Learning Credit based on the same student’s expenses, and it has lower income limits than the AOTC.

2019 will remain a challenging tax year for many. Tax benefits like charitable giving are still viable for those bunching charitable contributions into one year, rather than contributing on an annual basis, to get over the new standard-deduction hurdle. You may want to read our prior article on charitable giving here: Charitable Giving Strategies and Solutions

In the coming years, fewer taxpayers will itemize their deductions, instead opting to take Tax Reform’s newly expanded standard deduction. The Joint Committee on Taxation projected that the benefit of itemized deductions will increasingly flow to higher-income taxpayers in the years ahead. Though lawmakers have enacted limitations to reduce the value of tax deductions, taxpayers earning more than $200,000 will claim a disproportionately large share of certain key tax breaks.

Contact Us: One size does not fit all. The value of deductions depends on the top tax rate a taxpayer pays. Proper planning today means better tax savings tomorrow. Contact one of our tax and accounting professionals to guarantee you are on the right track for 2019. Call toll free: 855-534-2727.