01 Sep Big Tax Breaks that Many Taxpayers Miss
With the standard deduction increase provided by the Tax Cuts and Jobs Act of 2017, many Americans are now opting to take the standard deduction instead of itemizing. However, if you’re one of the millions who still itemizes deductions, it’s important that you include every possible deduction to maximize the benefit you receive. There are many available deductions that taxpayers frequently overlook, but here are a few of the biggest ones.
To Itemize or Not to Itemize?
Before we get into the itemized tax deductions you might miss, the first important question you’ll have to ask yourself is if it’s worth it to itemize at all. As we mentioned above, the TCJA increased the standard deduction significantly. For this tax year, the standard deductions are as follows:
- $12,550 for individuals
- $18,800 for heads of household
- $25,100 for joint filers
It’s also important to note that the TCJA eliminated many tax deductions (most personal casualty or theft losses, certain tax preparation fees, most investment expenses, etc.) as well as personal exemptions, so it’s important to factor these items into your decision regarding whether to itemize or note. If your itemized deductions fall below the numbers listed above, you’ll probably better off claiming the standard deduction.
Be sure to check out our blog on bunching deductions if you’re hoping to maximize your tax deductions each year. If you’ve determined that it’s in your favor to itemize your deductions this year, keep reading to make sure you’re claiming these often-overlooked deductions and credits.
If you pay for childcare while you’re at work, be sure to take advantage of the childcare tax credit. If you qualify, your tax credit could be worth between 20% and 35% of what you’re paying for childcare; essentially, this credit can reduce your annual childcare expenses by hundreds of dollars. Is that really a discount you want to miss out on?
If your employer offers a childcare reimbursement account—allowing you to pay for your child’s care with pretax dollars—this can help you save even more money depending on your tax bracket. Keep in mind you can only claim the credit or use pretax dollars for childcare, but can’t use pretax dollars for the credit.
American Opportunity Credit
The American Opportunity Credit can provide a large tax break to anyone paying college tuition—whether you’re the student or you’re paying for your child’s education. This credit is based on 100% of the first $2,000 you spend on eligible college expenses, and 25% of the next $2,000. This provides you with an annual credit of $2,500 for each student you’re paying for.
This credit does phase out at certain income thresholds. If your modified adjusted gross income is $80,000 or less (or $160,000 or less if filing jointly), you should qualify for the entire credit.
Most people won’t overlook large cash donations that they make to charity. These are easy to notice, usually have clear documentation on your bank statements, and simple to claim on a tax return. However, all the little donations (especially of non-cash items) people make throughout the year often get overlooked—and they can quickly add up.
For example, the unused clothing and other household items you donate have value that you can claim as a deduction. Or, if you purchase items for a fundraiser at your child’s school, you may be able to deduct a portion those items as well. Keep your receipts for all items donated or money spent for charitable purposes throughout the year, and you’ll see just how much more you could be deducting.
There are many costs of homeownership that are tax deductible. Here are the potential deductions, but please ensure that you qualify for these by speaking to a Provo tax expert:
- Mortgage interest
- Home equity loan interest used to improve or repair the home
- Property taxes
- Medically necessary home improvements
- Mortgage insurance
If you want to ensure that you don’t miss any tax deductions on your next tax return, contact a Provo tax expert here at The Accounting Guys. We can also help you to amend a past return if you missed qualifying deductions in previous years. Schedule an appointment with a CPA by contacting us today.