Will you end up in the green this tax season?
It’s the middle of March and you know what that means? Yes!….Individual tax filers have approximately one month before the April 15th tax filing deadline! Granted this is not exactly a fun filled holiday like St. Patrick’s Day, which is merely days away. However, unlike our special “everything green” holiday, luck is not required when it comes to receiving your best tax refund. For a successful tax filing, knowledge and expertise are required.
Use tax deductions and credits to max your refund
St. Patrick’s Day is the holiday of all things green. But how can you increase your chances of having more green to line your pockets? When preparing taxes, both deductions and tax credits can make a significant impact in reducing or offsetting taxes owed. Wolters Kluwer Tax & Accounting outlines the top dozen tax deductions and credits to maximize your tax refund.
Have you done your research?
“Taxpayers who take the time to research their options may find that they qualify for more tax deductions or credits than they thought,” said Mark Luscombe, JD, LL.M, CPA and Principal Federal Tax Analyst for Wolters Kluwer Tax & Accounting. “If you think there’s even a slight chance that you may or may not be eligible for a specific benefit, it’s a good idea to consult with a tax professional who can add clarity and identify other potential tax breaks for you on your 2018 tax return.”
Top Dozen Tax Deductions & Credits
Standard Deduction. By far the largest deduction in terms of numbers of taxpayers claiming the deduction and the total dollars claimed on all returns is the standard deduction. In 2016, it was claimed by about of two-thirds of individual returns filed and totaled $894 billion in deductions. In 2018, with the standard deduction doubling under the Tax Cuts and Jobs Act passed at the end of 2017, it is expected to be claimed by up to 90 percent of all taxpayers
State and Local Taxes Deduction. The state and local tax deduction was claimed by almost 45 million individual taxpayers in 2016. This totaled about $566 billion in deductions. In 2018, under the Tax Cuts and Jobs Act, the size of the deduction is expected to be greatly reduced. This is due to the new $10,000 limit on the deduction and fewer taxpayers itemizing deductions due to the greater standard deduction
Charitable Contributions Deduction. Almost 37 million individual taxpayers claimed the charitable contributions deduction in 2016, with total deductions of almost $234 billion. Under the Tax Cuts and Jobs Act, fewer taxpayers may claim the charitable contributions deduction due to the increase in the standard deduction, but those that do may claim more with the increase in the deduction limit from 50 percent to 60 percent of adjusted gross income
Home Mortgage Interest Deduction. Almost 33 million individual taxpayers claimed the mortgage interest deduction in 2016, and the total dollars claimed, almost $283 billion, was greater than the dollars claimed for the charitable contributions deduction. Under the Tax Cuts and Jobs Act, this deduction may go down due to the increased standard deduction and the new $750,000 limit on home mortgage principal
Earned Income Tax Credit.The first credit on the top dozen list is the Earned Income Tax Credit, claimed by 27.4 million taxpayers, with the total credits claimed of $67 billion in 2016. The Tax Cuts and Jobs Act made no significant changes to the Earned Income Tax Credit
Child Tax Credit. The Child Tax Credit was claimed by 22 million individual taxpayers in 2016 at a cost to the Treasury of $26.8 billion. On 2018 tax returns, the cost is likely to go up since the Tax Cuts and Jobs Act doubled the credit from $1,000 to $2,000 and increased the refundable amount to $1,400
Self-employment Tax Deduction. The self-employment tax deduction was claimed by 19.6 million taxpayers in 2016 with total deductions of $29.9 billion. Two other self-employment tax deductions made the top dozen list in terms of size of the total deductions but not in terms of the number of taxpayers claiming them. The deduction for self-employed health insurance was claimed by 4 million taxpayers in 2016 totaling $30.1 billion. The deduction for Keogh and self-employed retirement plans was claimed by only 988,520 taxpayers but deductions totaled $24.7 billion in 2016
Student Loan Interest Deduction.The deduction for student loan interest was claimed by 12.4 million taxpayers in 2016 with deductions totaling $13.4 billion. Although originally proposed to be eliminated, the deduction survived intact under the Tax Cuts and Jobs Act
Refundable American Opportunity Tax Credit. The most popular education credit was claimed by 8.8 million taxpayers in 2016 with total credits claimed of $7.9 billion. This credit also survived under the Tax Cuts and Jobs Act
Non-refundable Education Credits. These education credits, the Lifetime Learning Credit and the non-refundable portion of the American Opportunity Tax Credit, were claimed by 9 million taxpayers in 2016 with total credits claimed of $9.6 billion. These credits also survived intact under the Tax Cuts and Jobs Act
Medical Expense Deduction. The medical expense deduction was claimed by 8.9 million individual taxpayers in 2016. However, the total dollars claimed was fifth on the list, at $90 billion. Under the Tax Cuts and Jobs Act, the increase in the standard deduction may reduce the number of persons claiming the deduction, but the amount claimed may increase due to the drop in the adjusted gross income threshold from 10 to 7.5 percent
Retirement Savings Contribution Credit.The retirement savings contribution credit was claimed by 9 million individual taxpayers in 2016 at a cost of $9.6 billion. It also survived the Tax Cuts and Jobs Act