All Tax Deductions for 2018
This tax season promises to be … interesting as the government shutdown and new tax regulations collide, creating a veritable storm of confusion and inefficiency.
We’ll talk about the consequences of the shutdown in a later post. At this point, it is important to understand how the Tax Cuts and Jobs Act has changed the credits and deductions available to taxpayers. Here’s what you need to know about tax deductions for the 2018 tax year (for tax deductions for 2018, see here ).
Tax deductions
Tax deductions lower your taxes by reducing the income from which you pay taxes. So, for example, if your income is $ 50,000 and you take the standard deduction of $ 12,000 this year, you pay taxes on $ 38,000. (If you’re really curious about how your income is taxed, read this article on marginal tax rates .)
You have the option to take advantage of the standard deduction:
- Standard Deduction : The tax law raised the standard deduction to $ 12,000 for 2018 for individuals and $ 24,000 for married couples, making it more attractive to more tax filers.
Or list your deductions. You can choose granularity if your deductions exceed $ 12,000. For instance:
- Mortgage Interest : If you have a mortgage for a first home, second home, home equity loan, or home equity line of credit (if the loan was used to expand / improve your home), you can deduct the interest payments on the loan / loans up to USD 750,000. That’s less than $ 1 million in 2017.
- State and local income taxes : You can deduct state and local taxes. But you can only deduct up to $ 10,000 in state tax, local tax, and property tax combined, as required by the 2017 tax law.
- Property taxes : You can deduct property taxes if you are a homeowner. But as noted, you can deduct up to $ 10,000 in state, local, and property taxes combined.
- Medical expenses : You can deduct medical expenses (such as the cost of prescriptions, insurance premiums, etc.) if those expenses exceed 7.5 percent of your adjusted gross income. In 2019, you will only be able to deduct expenses in excess of 10 percent of your AGI. (“Your Adjusted Gross Income (AGI) is your taxable income minus any income adjustments such as contributions, traditional IRA contributions, and student loan interest,” explains TurboTax .)
- Investment interest expense : This is one area that has changed a lot in 2018. Basically, you can deduct the interest paid on money borrowed to buy taxable investments, up to the amount earned from the investment.
- Charitable Donations: According to the IRS, you can deduct contributions from “money or property made to qualified organizations … up to 50 percent of your adjusted gross income.” For gifts paid for in cash only, the tax law increased the AGI limit to 60 percent .
Other deductions that you may have used in previous years have likely been canceled by law , including post-2018 divorce settlement, employee business expenses, investment fees, relocation costs, personal benefits, and tax preparation costs.
Non-objective deductions
If you do not list the details, you can still make some deductions, which are technically called “income adjustments” or “superhuman deductions.” These adjustments reduce your AGI and your overall tax bill.
- Savings Account Deduction : Do you know how we always extol the tax efficiency of something like HSA? This is where some of it comes into play. The money you deposit is not only tax-free, but you can deduct the amount.
- IRA Contributions : If you make contributions to a traditional (non-Roth) IRA, you can deduct this amount if you qualify .
- Teacher Expenses : You can deduct up to $ 250 from your own pocket on supplies if you are a teacher.
- Student Loan Interest : You can deduct the lower of the $ 2,500 or total interest you paid on public or private student loans, provided you meet these requirements .
- Self-employment taxes. If you are self-employed, you can deduct the employer’s share from your Medicare and Social Security taxes because you pay taxes to both employees and employers.
- Self-Employed Pension Contributions : If you have a SEP IRA or SIMPLE IRA or 401 (k), you can deduct the entire amount you contribute for the year.
- Self-Employed Insurance Premiums: You can deduct 100 percent of the health insurance premiums you paid for yourself and your family, provided your spouse does not have access to insurance at work.
This is a good starting point. If you’re working with a tax professional (or using software like TurboTax), be sure to ask what else you might be missing. And stay tuned for our article on tax breaks for 2018 .