'TIS THE (TAX) SEASON
Paying taxes may be a fact of life, but depending on where you live, you may be able to keep a little extra money in your pocket thanks to some state-specific tax breaks. From socking away money in a college savings fund to donating to a charitable cause, there are plenty of ways to save money with available tax credits and deductions — if you qualify. While heading into tax season, shoebox of receipts in hand, keep in mind these money-saving tax tips from each state.
(Be sure to consult a tax adviser to confirm benefits that might be available based on your state or individual status.)
Alaska is one of a handful of states that doesn't withhold personal income tax — the others are Florida, Nevada, South Dakota, Texas, Washington, and Wyoming — which helps save a bundle. The state also exempts from property taxes the first $150,000 of assessed value for disabled veterans and seniors 65 and older. And if you happen to be a whaling captain recognized by the Alaska Eskimo Whaling Commission, you can deduct up to $10,000 for whaling-related expenses.
Taxpayers who itemize deductions can take advantage of several state-specific tax credits while getting a federal deduction for the same charitable deductions. The credits include donating to the state's public school system (up to $200 for individuals and $400 for family) even if you don't have a student enrolled. Taxpayers can also donate to a qualifying state foster care charitable organization, the Arizona State Department of Veteran Services, and organizations that help the working poor. Other items that may be deductible include license plate fees and medical expenses.
Individuals and businesses that own historic properties in Arkansas can make the most of a law that increases the state tax credit on certified rehabilitation projects. While it may not apply to many, if you own a property listed on the National Register of Historic Places or contribute to National Register historic districts, you can claim a tax credit on 25 percent of the first $1.6 million of eligible expenses — more than triple the amount before the law was passed.
If you rent your home and have personal income tax liability, you may be eligible for the state's renters credit, which applies if your adjusted gross income is $41,641 or less as an individual or $83,282 or less if married (or are registered domestic partners) and filing jointly. The credit isn't huge — $60 for individuals and $120 for couples — but, hey, everything counts at tax time. Certain income is also exempt from income taxes, including Social Security, state tax refunds, unemployment compensation, and state lottery winnings (fingers crossed).
Seniors are eligible for a variety of advantages when it comes time to file taxes. Anyone 55 or older who sells their home and takes a one-time federal exclusion on the sale will not have to pay the first $125,000 of the capital gain. If the seller is 65 or older and lived in the home five of the past eight years, the capital gain is not taxed at all. Additionally, the state also offers an annual rent or property tax credit to residents 65 or older, as well as free aid with personal taxes.
For such a small state, Delaware offers taxpayers huge benefits in tax season. In addition to having the fourth-lowest U.S. property tax, it also has low income tax rates, does not tax Social Security income, and has no estate or inheritance tax — all of which make a hugely popular destination for retirees. Retirees should also take advantage of a pension exclusion, that offers a deduction up to $12,500 on income from pensions or retirement savings accounts for residents 60 and older.
Another retiree-friendly state, Illinois offers full deductions for pension income, Social Security, and retirement savings account income. Taxpayers with children in kindergarten to 12th grade at a public or private school may also qualify for a tax credit for a portion of expenses. Low- and some middle-income families and individuals may also qualify for the state's Earned Income Tax Credit, which can equal 18 percent of their federal EIC.
Social Security income is exempt for retirees with an Adjusted Gross Income below $75,000, and public pension income. (Other forms of retirement income, such as a 401(k) or IRA, are not.) To help lower-income seniors, the state offers tax relief programs such as the homestead refund for individuals born before Jan. 1, 1963, with a total household income of $35,000 or less. The Safe Seniors program also refunds 75 percent of paid property taxes for those over 65 with a household income of $19,800 or less.
Got kids? Taxpayers with children in kindergarten through 12th grade in qualifying public and nonpublic schools — and even those that are homeschooled — could save a bundle on tuition, textbooks, uniforms, and other school expenses. Residents may be able to deduct half of the associated costs up to $5,000 for each dependent. Tax credits are also available for child care expenses, as well as child care providers and businesses donating to those organizations.
Renters and property owners may be eligible for tax relief by meeting certain requirements for the Property Tax Fairness Credit — though many don't realize they qualify. Replacing the more limited Circuit Breaker credit, it is available to residents with adjusted gross income up to $34,167 if single or $44,167 if married filing jointly, head of household or qualifying widow(er). If real estate taxes were more than 6 percent of total income or total rent was more than 40 percent, you may be entitled to up to $750 or $1,200 if 65 years or older.
Taxpayers whose homes are damaged by hurricanes or flooding may be able to open a catastrophe savings account that can be used tax-free to pay for eligible expenses. Homeowners can put in up to $2,000 if their home insurance deductible is $1,000 or less. If the deductible is over $1,000, they can contribute up to $15,000 or twice the deductible, depending on which is less.
Residents may be able to save a bundle come tax time from an extensive list of available tax credits that help reduce tax bills dollar for dollar (as opposed to deductions that just reduce the amount of taxable income). Many credits involve making donations to charitable causes, such as eligible agencies that help at-risk children, domestic violence victims, pregnant mothers, and even local sports organizations.
Taxpayers can save with tax credits for a range of expenses, such as those related to adoption, alternative energy, dependent care, and college contributions. The state also offers a Elderly Homeowner/Renter Tax Credit that helps renters and homeowners 62 and older with less than $45,000 in gross household income.
To encourage careers in farming, Nebraska offers a Beginning Farmer/Rancher program tax incentive. Qualifying farmers — who don't have to be young to be eligible — may be exempted from personal property tax up to $100,000 for agricultural land, and up to $500 credit for qualified financial management classes. Taxpayers that help beginning farmers with such things as land, livestock, and equipment may also be eligible for tax credits.
While a number of federal deductions are not allowed on the New Jersey state tax return, such as moving expenses, mortgage interest, IRA contributions and employee business expenses, Garden Staters still have available deductions in medical expenses that exceed 2 percent of income, including doctor's visits and dental care, and self-employed health insurance. In some cases homeowners and renters may qualify for a property tax deduction or credit for up to 100 percent of property taxes or $15,000, whichever is less (and for tenants, 18 percent of rent paid during the year).
The Empire State offers taxpayers a lengthy list of tax credits that could come in handy. Popular ones include a college tuition credit up to $400, a child and dependent care credit, and a family tax relief credit of $350. Volunteer firefighters and ambulance workers can also claim $200 (or $400 for married couples when both volunteer), and individuals and families living in New York City may also be eligible for additional credits.
Taxpayers considering buying a new electric vehicle or converting a gas-powered one to electric can claim a credit for 45 percent of the additional cost compared with a standard gas vehicle with a cap of $1,500 — on top of the federal credit of up to $7,500. (The credit doesn't apply to golf carts or go-carts.) Drivers of electric vehicles also narrowly avoided having to pay a $100 fee approved by the state, after the state Supreme Court deemed it too high.
While the Beaver State often gets dinged for having some of the country’s highest income tax rates (5 percent to 9.9 percent), consumers there do catch a break in that there is no sales tax. Residents looking to buy their first home may also be eligible for the state’s First Time Home Buyer Savings Account program that lets individuals sock away up to $5,000 ($10,000 for joint filers) and subtract that amount from their taxable income.
Taxpayers are likely keenly aware that flat-tax Pennsylvania doesn't allow many of the deductions available on the federal return — but there are a few, including employment-related expenses that aren't reimbursed by an employer, contributions to medical and health savings accounts, and contributions to 529 college savings accounts up to $15,000 per student ($30,000 per year for married couples).
Among tax credits here are several new ones and updates people may not know about. To help offset an increase to the state's motor fuel user fee, drivers are now eligible for a credit for up to two vehicles or motorcycles to help cover fuel and preventive maintenance. Effective for the 2018 tax year, the in-state college tuition credit also increased to 50 percent of tuition paid, up from 25 percent, up to $1,500 for two- or four-year colleges.
Taxpayers don't have to pay a state "hall" tax on income from salaries and wages, but are required to pay a flat 3 percent tax on income from interest and dividend earnings, decreasing every year until the tax is gone. The first $1,250 of those earnings are exempt for single filers ($2,500 for joint filers). And people 65 and older with an income of $37,000 or less ($68,000 for joint filers), are also exempt. Starting this year, anyone age 100 or older will also be exempt.
No income tax is collected from Texans, who can save further by taking the state and local tax deduction (aka SALT) on their federal returns, though the deduction is now capped at $10,000 and may not be worthwhile for many after the federal tax reform law increased the standard deduction. But any taxpayers looking to restore or preserve a historic landmark may be eligible for the state's historic preservation tax credit program.
Farmers who have had a particularly abundant year may want to consider donating excess food crops to a nonprofit food bank and reaping the Food Crop Donation Credit allows credit equal to 30 percent of the fair market value for the donated food up to $5,000. Non-farmers can take advantage of other deductions, including for child and dependent care.
One more state that doesn't collect income tax, Washingtonians should be sure investigate whether it is worthwhile to deduct their pricey state and local sales taxes on federal returns.