TO YOUR CREDIT
While some of the best credits and deductions required taxpayers to take action before Dec. 31, there are others that can be used right up to the filing deadline in April. Whenever possible, though, seek out credits rather than deductions: Each dollar in tax credits is one less dollar in taxes paid, while deductions that reduce taxable income offsets taxes by only 10 to 39.6 cents for every dollar deducted, depending on the tax bracket. With help from Melinda Kibler, a certified financial planner and enrolled agent with Palisades Hudson Financial Group in Fort Lauderdale, Florida, we found a host of 2018 deductions and credits to choose from.
That higher standard deduction makes it difficult to put together enough charitable deductions to make it worth itemizing. But if you do make large contributions, the threshold for deductions has jumped from 50 percent of adjusted gross income to 60 percent. While it's too late to make charitable donations for 2018, Kibler suggests tracking down receipts for donations made throughout the year, especially of cash or goods. Giving to eligible nonprofits, religious organizations, and government organizations (such as a school or public library) are deductible. "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," Kibler says.
AMERICAN OPPORTUNITY TAX CREDIT
LIFETIME LEARNING CREDIT
This is the tax credit for the older student. Anyone taking classes at an eligible educational institution to acquire or improve job skills is eligible, even students taking just one class well after four years of undergraduate education. There are limits: Students are credited for only 20 percent of $10,000 in expenses ($2,000 is the maximum), though it can be applied to tuition, fees, books, supplies, and equipment. Individuals with an adjustable gross income between $56,000 and $66,000 (or between $112,000 but less than $132,000 for married filing jointly), will get a reduced amount. If it's over those thresholds, you can't claim the credit at all.
STUDENT LOAN INTEREST DEDUCTION
CHILD TAX CREDIT
DEPENDENT CARE CREDIT
EARNED INCOME TAX CREDIT
PREMIUM TAX CREDIT
MORTGAGE INTEREST DEDUCTION
MORTGAGE INTEREST CREDIT
CREDIT FOR THE ELDERLY OR THE DISABLED
MEDICAL EXPENSES DEDUCTION
A longtime friend to small-business owners and freelancers, the Simplified Employee Pension IRA offers higher contribution limits than a traditional IRA. As their own employer, business owners and freelancers can contribute up to 25 percent of their annual income or $55,000, whichever is lower. As with a traditional IRA, contributions made before the tax-filing deadline (without an extension) can be applied to the previous year.
SOLO 401(K) CONTRIBUTIONS
HOME OFFICE DEDUCTION
This one is tricky, as simply working on the couch or at a kitchen table doesn't cut it. A home office has to be a dedicated space for working and meeting clients and customers. Furthermore, office-related utilities including telephone, internet, and even heat and electricity have to be parsed out separately. You can try to determine which portion of a home's expenses, taxes, insurance, and depreciation is dedicated to a home office; a simplified version multiplies the square feet of the room by $5 (if the total size is 300 square feet or smaller). That said, you can only get this deduction if you're self-employed: It disappeared for employees in 2018.
STATE AND LOCAL TAX DEDUCTION
Under tax changes, deductions for state and local taxes (property tax and sales or income tax) are capped at $10,000 from 2018 through 2025. If your total state and local taxes and property taxes are typically more than the $10,000, there's no way to increase the deduction. The new tax law prohibited prepaying 2018 state and local taxes that were not imposed in 2017.
ELECTRIC VEHICLE AND PLUG-IN HYBRID TAX CREDIT
Despite fears it would be eliminated, this credit still offers buyers of electric or plug-in hybrid vehicles up to $7,500 for the purchase. While this credit isn't going to be around forever, it's still a formidable tool for boosting sales of these fuel-efficient vehicles in spite of low gas prices and the market's hunger for less-efficient SUVs.
HOME SALE EXCLUSION
FOREIGN TAX CREDIT
FOREIGN EARNED INCOME EXCLUSION
If you live in a foreign country for at least 330 full days out of the year, you can have up to $104,100 of your salaries, wages, professional fees, and other amounts you get as an employee excluded from federally taxable income. You may also exclude amounts your employer pays for rent, furniture rental, parking, or other items.
HSA CONTRIBUTION LIMITS
NONBUSINESS ENERGY TAX CREDIT
RESIDENTIAL RENEWABLE ENERGY TAX CREDIT
CASUALTY, DISASTER AND THEFT LOSSES
The self-employed, including those with freelance income, can write off educational expenses for workshops, webinars, books, or other material that maintain or improve skills. While educational expenses to meet the minimum requirements of a trade or business — or related to getting into a new line of work — don't qualify, refresher courses, courses on current developments, and academic or vocational courses would. The deduction is the amount by which qualifying work-related expenses is greater than 2 percent of adjusted gross income.