What Can I Deduct at Tax Time?

The Tax Cuts & Jobs Act has created sweeping tax reform that really affects taxpayer’s ability to itemize at tax time. It is more important than ever to consult your tax professional to help you make sense of what you can deduct.

Everyone should have a good understanding of what they can deduct from their taxes. That’s because, not only do deductions reduce your taxable income, but they also reduce your tax liability. Deductions go beyond charitable donations and mortgage interest.

The Tax Cuts & Jobs Act has created sweeping tax reform that really affects taxpayer’s ability to itemize at tax time.  With the standard deduction doubling, elimination of personal exemptions & other changes – it is more important than ever to consult your tax professional to help you make sense of what you can deduct.

Here’s a simple guide for how tax deductions work and how to choose between standard or itemized deductions.

What is the Purpose of Tax Deductions?

Tax deductions allow you to subtract specific expenses from your taxable income, leaving you with less to pay at tax time. Tax deductions, unlike tax credits, are an indirect reduction of your tax bill. Another important thing to note is that, the higher your marginal tax rate, the better a tax deduction will treat you.

Standard Deduction vs. Itemized Deduction

People often ask, “Is the standard deduction right for me? Or should I itemize my tax deductions?” The standard deduction makes things easier, but if you are pretty sure that your deductions will add up to be more than the standard deduction, it’s a good idea to itemize your deductions.

Some Itemized Deductions That Can Save You Big

·  Charitable Gifts

So, you’re probably paying attention to your larger financial gifts and your Goodwill donations, but do you keep track of all the small charity-related expenses? If you keep track of every last thing, it can really add up. Save the receipts anytime you buy groceries to make food for a charity fundraiser or any time you make any type of small donation. Also, keep track of your mileage: you can deduct 14 cents per mile any time you drive your car for charity.

·  State Tax from Last Year

If you owed taxes on last year’s state tax return, you may be able to include that amount on your state tax itemized deduction. You can also include the state income taxes that were withheld from your paychecks.

·  Mortgage Points from Refinancing

If you refinanced a mortgage this year, you can deduct the points over the life of the loan.

·  Student Loan Interest Paid by Parents

If your parents paid back part of your student loans, then the IRS treats it like your parents gave you the money and you paid the loan. This is a great thing, because if you aren’t claimed as a dependent, you may be able to deduct up to $2,500 of student loan interest!

·  Financial Planning Expenses

This is a great one because you can gain healthier finances and a tax deduction at the same time! If you pay for tax planning and investment planning, you can deduct these costs—if they exceed 2% of your adjusted gross income. In addition to deducting the bills from your financial planner, you can even include subscriptions to financial publications in these costs.

Did you find any deductions that will work for you?

These are just some of the many oft-overlooked tax deductions that you may be eligible for. A certified financial planner will be able to help you find the right deductions for your unique situation!

About the Author

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Joseph A. Davis, EA, CDFA®BFA™

Director

With over 16 years in the financial services industry, Joe knows his stuff. Cursed with the desire to be a serial entrepreneur - Joe is a real estate investor & managing partner for Davis Financial LLC, Utah Divorce Services and Davis Tax & Associates. He most recently became the director for Find a CPA Today. Joe is an Enrolled Agent, EA, & CDFA®, BFA™. He also holds FINRA licenses 7, 66 & 24. When Joe isn't trading, looking for new real estate investments or obsessing over his work - you can find him at home, playing with his children & probably mowing his lawn.

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