Tax Deductions to Look at before the Year End
You may be leaving money on the table for the IRS to grab if you forget some of the deductions allowed.
Its not too late for you to go over them and see if you can save some money on taxes.
1. Maximize your 401(k) Contribution The limit on employee elective deferrals (for traditional and safe harbor plans) is: $19,000 in 2019 You are able to defer income by contributing to your 410(k) or TSP
2. Contribute to an IRA The annual contribution limit for 2020 is $6,000, or $7,000 if you’re age 50 or older If neither you nor your spouse is covered by a retirement plan at work, your deduction is allowed in full. For contributions to a traditional IRA, the amount you can deduct may be limited if you or your spouse is covered by a retirement plan at work and your income exceeds certain levels.
3. Educator Expenses $250 If you're an eligible educator, you can deduct up to $250 ($500 if married filing jointly and both spouses are eligible educators, but not more than $250 each) of un-reimbursed trade or business expenses. Qualified expenses are amounts you paid or incurred for participation in professional development courses, books, supplies, computer equipment (including related software and services), other equipment, and supplementary materials that you use in the classroom. For courses in health or physical education, the expenses for supplies must be for athletic supplies. This deduction is for expenses paid or incurred during the tax year. You're an eligible educator if, for the tax year you're a kindergarten through grade 12 teacher, instructor, counselor, principal or aide for at least 900 hours a school year in a school that provides elementary or secondary education as determined under state law.
4. Penalty On Early Withdrawals Certificate of Deposit (CD) Penalty
5.Student Loan Interest Student loan interest is interest you paid during the year on a qualified student loan. It includes both required and voluntarily pre-paid interest payments. You may deduct the lesser of $2,500 orthe amount of interest you actually paid during the year. The deduction is gradually reduced and eventually eliminated by phaseout when your modified adjusted gross income (MAGI) amount reaches the annual limit for your filing status. Single, Head of Household, Qualifying Widower not more than 65,000 up to 80,000 eliminated by the phaseout = no deduction Married Filing Joint not more than 135,000 up to 165,000 eliminated by the phaseout = no deduction
• Standard Deduction vs Itemize deductions If your Itemized Deductions are higher than the Standard Deduction then it is more beneficial for you to Itemize. However, if your tax return is selected for an Audit you will need to substantiate the Itemized deductions. Standard Deduction for Single, Married Filing Separate, 12,000 Head of Household 18,000 Married Fining Joint, Qualified Widower 24,000
1. Medical – Exceed 7.5% of AGI You can deduct medical expenses that surpass 7.5% of your adjusted gross income. For example, if your AGI is 50,000 the amount of medical expenses has to be greater than 3,750 anything above that is deductible
2. State and Local Income Tax, Sales Tax, Personal Property Tax and Real Estate Tax State and Local General Sales Tax Actual Sales Taxes Paid or use the Sales Tax Table Your total deduction for state and local income, sales and property taxes is limited to a combined, total deduction of $10,000 ($5,000 if Married Filing Separate). Any state and local taxes you paid above this amount cannot be deducted.
3.Mortgage Interest Your deduction for mortgage interest is limited to interest you paid on a loan secured by your main home or second home that you used to buy, build, or substantially improve your main home or second home.
4. Charitable Contributions The limit on charitable contributions of cash has increased from 50 percent to 60 percent of your adjusted gross income. In order to substantiate the deductions of $250 or more you need a written acknowledgment of the contribution by the donee organization. The statement must be obtained before the date on which you file a tax return for the year the contribution was made, or by the due date of filing such return. If you are close to surpassing the Standard Deduction, you may want to contribute some more to your favorite charities.