Americans love tax breaks.
In the past, everybody knew they could deduct mortgage interest, medical expenses over a certain amount, gifts to charity — even the cost of preparing their tax return.
However, federal tax reform means some deductions have now disappeared. Others aren’t as valuable, thanks to an increased standard deduction that makes it less attractive to itemize. Those new standard deduction amounts are:
- $12,000 for single taxpayers and married taxpayers who file separate returns
- $24,000 for married couples filing jointly
- $18,000 for taxpayers filing as “head of household”
Nonetheless, here are some credits and deductions you should not overlook. Some save you money if you itemize, but others are available even if you do not.
If you itemize, you can deduct the value of any cash or property donations to a legitimate charity, although you’ll need receipts.
That’s common knowledge, but here’s something that isn’t: Volunteers can deduct 14 cents per mile traveled to and from charity work, plus out-of-pocket expenses from that work, including supplies and required uniforms. (Your time isn’t deductible.)
For more details, check out IRS Publication 526.
2. State taxes
This tax break is not as generous as it once was. In the wake of the Tax Cuts and Jobs Act of 2017, taxpayers who itemize can deduct state individual income, sales and property taxes up to a limit of $10,000.
So, while this tax break has been trimmed back, it’s still valuable to many — especially residents of the seven states with no state income tax, which are:
- South Dakota
3. Child tax credit
As we reported last year, not only did the child tax credit survive tax reform, it also became more generous:
The new rules double the credit to $2,000 per child. However, the refundable part of the credit cannot exceed $1,400.
The tax overhaul also makes this credit available to more families. The income threshold drops by $500, to $2,500. And you can earn more income before the credit is phased out.
Remember, a credit is worth a lot more than a deduction; a credit reduces your taxes dollar for dollar, whereas a deduction only reduces the income you’re taxed on. For example, if you’re in the 25 percent tax bracket, a dollar of deduction reduces your tax by 25 cents. But a dollar of credit reduces your taxes by a full dollar.
Retirement contributions often qualify for a deduction (which reduces your taxable income), but they also can net you a credit if your income is relatively modest.
It’s called the Retirement Savings Contribution Credit or Saver’s Credit, and you may be eligible if you made contributions to an IRA, 401(k) or other qualified retirement plan. According to the IRS:
The amount of the credit is 50%, 20% or 10% of your retirement plan or IRA or ABLE account contributions depending on your adjusted gross income (reported on your Form 1040 series return). The maximum credit amount is $2,000 ($4,000 if married filing jointly).
Check out the link to the IRS website above to find out if you qualify, and how much you can save. We also discuss this credit in detail in “75 Percent of Eligible Households Ignore This Retirement Tax Credit.”