CATCH A BREAK
INCREASE RETIREMENT PLAN CONTRIBUTIONS
CONTRIBUTE TO A HEALTH SAVINGS ACCOUNT
SET UP A HOME OFFICE
Those who run a business from home or work from home may qualify for a home office deduction. "According to the IRS, this means a space designated as your home office that is used regularly and extensively for conducting business," explains Deborah Sweeney, CEO of MyCorporation.com. Those who do qualify under the IRS guidelines for home offices are eligible to write off such things as rent, utilities, real estate taxes, and more.
DEDUCT WORK-RELATED MILEAGE EXPENSES
If you're self-employed and use your vehicle for work purposes, keep a meticulous record of your mileage, says Julie Ramhold, consumer analyst with DealNews. "You can deduct (the mileage) any time you use your car for work-related trips, including errands, or driving to the office or attending a meeting," Ramhold said.
INCORPORATE YOUR BUSINESS
Independent workers, gig workers, or those who work for third parties may want to incorporate their business. Not only does it protect assets, you may also now receive significant tax benefits, says Sweeney of MyCorporation.com. "With the new tax laws, these businesses could stand to save 20 percent. Business income that passes through to an individual from a pass-through entity will be taxed at individual tax rates less a deduction of up to 20 percent to bring the rate lower," Sweeney explained.
GO BACK TO SCHOOL
Money spent on higher education and on post-secondary school such as undergraduate, graduate, and professional degree courses (including courses to acquire or improve job skills) may be eligible for a Lifetime Learning Credit worth up to $2,000 a year. The credit may be claimed for yourself, a spouse, or a dependent.
DEDUCT STUDENT LOAN INTEREST
Don't forget about that interest paid on student loans, it, too, continues to be deductible, advises Nate Matherson, co-founder and CEO of LendEDU.com. "You can deduct up to $2,500 in interest paid on student loan debt," Matherson said. "Your student loan servicer will provide you with a 1098-E statement of interest paid at the beginning of each year. If you have multiple servicers, don't forget to collect your 1098-E from each of your servicers."
MAKE THE MOST OF HAVING DEPENDENT CHILDREN AT HOME
Claiming your children as dependents can pay off in multiple ways. For instance, parents can claim one exemption of about $2,000 for each child. New in 2018 is also a $500 nonrefundable credit for qualifying dependents other than children. In addition, there's the Child Tax Credit, which is refundable up to $1,400 per qualifying child depending on your income, according to the IRS. A variety of criteria must be met in order to receive this credit, such as the child's age, relationship, support, citizenship, and residence.
DON'T FORGET TO DEDUCT CHILDCARE EXPENSES
Do you pay for childcare while you work? Qualifying parents of children under 13 can claim dependent care credit of up to 35 percent of the childcare expenses up to $3,000 for one child or $6,000 for two or more, explains Zimmelman of Westwood Tax & Consulting. Even if your child turned 13 during the year, you can still claim a portion of this credit for the time that they were under 13. You can also receive the credit for children or other dependents over age 13 if they are unable to care for themselves.
CLAIM A DEDUCTION FOR ELDERLY PARENTS LIVING WITH YOU
In the same way that you can claim children as dependents, you can also claim elderly parents, says Dane Dickler, partner at the accounting firm EisnerAmper. For 2018 you can claim a $500 nonrefundable credit for qualifying dependents other than children. "When it comes to claiming dependents most people only think of kids, but it can also be a parent," said Dickler. "A lot of elderly parents move back in with kids and have little or no income. If this is the case, they should be claimed as a dependent." You must have provided more than half of your parent's support during the tax year in order to claim them as a dependent.
BUY A HYBRID CAR
The purchase of a plug-in or hybrid car can potentially qualify you for a tax credit, says Dinich of Your Money Matters. The credit ranges from $2,500 to $7,500 per new vehicle purchased for use in the United States. The exact credit amount depends on factors such as the size of the vehicle and its battery capacity. To determine the specific credit for individual vehicles, visit FuelEconomy.gov's page on tax credits for electric and hybrid vehicles.
DEDUCT JOB SEARCH EXPENSES
Few people realize that job search expensescan be deducted, said Matherson, co-founder and CEO of LendEDU.com. "If you lose your job, and you're planning to stay in the same field, you can deduct some of your job search expenses on your tax return," he explained. "To qualify, your job search expenses will need to exceed 2 percent of your adjusted gross income. You can deduct your job search expenses over the 2 percent threshold." Depending on your length of unemployment, it might be easier than you think to meet the qualifications for this deduction. The job search process is tough, so why not get yourself a deduction for all the hard work?
RELOCATE TO A DIFFERENT STATE
BUY A HOUSE
Even with changes to the tax laws under the Tax Cuts and Jobs Act, experts agree that buying a house is still often a good way to reduce your taxes. Owning a home allows you to deduct interest payments, depreciation and more, says Jeff Miller, cofounder of AE Home Group. But be careful, the new tax law limits the combined state income tax and property tax deduction to $10,000. "Buying a house is a great idea," Miller said. "But it's important to research your state's income and property tax liability."
DEDUCT MOVING EXPENSES
While on the topic of moving, did you move for work in 2018? If you relocated to start a new job you might be able to deduct expenses incurred, such as the cost of a U-Haul rental or fees for a storage unit, says Josh Zimmelman, president of Westwood Tax & Consulting. In order to qualify for this deduction, the move must meet various IRS requirements, such as a distance test. In other words, the distance from your new home to your new job can't be more than the distance from your former home to the new job.
DONATE TO CHARITY AND DEDUCT EVERY DIME OF WHAT YOU GIVE
This year the number of tax returns claiming charitable deductions is expected to drop dramatically because of changes to the tax law. The standard deduction for 2018 is almost double that of 2017, jumping from $6,350 to $12,000 for single filers and from $12,700 to $24,000 for couples filing jointly, making it a hard barrier for many to cross. But if you do qualify, be thorough. People largely underreport their charitable contributions, says tax expert Melinda Kibler of Palisades Hudson Financial Group. "Many people don't keep records throughout the year. Missing many small donations can be costly," she explained. "If you dropped off a bag of clothing at a local charity or gave them $5 at the cash register of your grocery store, make sure to track these contributions so you get the highest tax benefit possible."
CREATE A DONOR ADVISED FUND
DONATE SECURITIES TO CHARITY DIRECTLY
ALIMONY IS TAX DEDUCTIBLE IN SOME CASES
Alimony payments for 2018 are not tax deductible unless the divorce was settled prior to 2019, and received alimony is no longer taxable. However, agreements made before the cutoff are still tax deductible.
PUT INCOME-EARNING SAVINGS IN CHILDREN'S NAMES
While top earners often put savings under their kids' names to lower their tax burden, its a little harder to do this year thanks to the Kiddie Tax. For 2018, the first $1,050 of a child's unearned income is tax-free, and the next $1,050 is taxed at the child's own rate (probably 10 percent). Any additional investment income at the tax rates used for trusts, which can be as high as 37 percent. The Kiddie Tax applies until the child turns 19 or 24 if a dependent, full-time student.
FILE YOUR TAXES FOR FREE
One last way to reduce annual expenses associated with taxes — file your taxes for free, suggests Kat Tretina, personal finance expert for Student Loan Hero. "You can skip paying hundreds for tax preparation," explained Tretina. If you're making $66,000 or less, you can have an IRS-trained volunteer help prepare and submit your tax return through the Volunteer Income Tax Assistance program. The program also provides assistance to those with disabilities or who have limited English skills.