What new deductions and exemptions do I need to consider to reduce my tax bill?
Every year, new tax laws, regulations and court cases require a fresh look at how you file your tax return. Changes in your circumstances also matter—marriage, birth, divorce, a new home or job, new investments, and more. Below are a handful of changes to consider as you look for ways to lower your taxes.
Tax breaks for educators —Millions of eligible elementary and secondary school teachers and other educators can take a deduction for up to $250 of their out-of-pocket costs of classroom supplies, such as books, computer equipment and software. This deduction had expired but has been renewed. It can be a deduction from Total Income rather than a miscellaneous itemized deduction, making it more valuable. To qualify, according to the IRS, an educator must be “a kindergarten through grade 12 teacher, instructor, counselor, principal or aide in school for at least 900 hours during a school year.”
Deducting Sales Tax — This tax break had expired but was recently revived. For those using Form 1040 and itemizing deductions, there is now a choice. You can deduct either your state and local income taxes or your sales taxes—though not both. If you live in a state that has no state income tax, this can prove useful, but it also benefits people in states with both types of taxes. For some taxpayers, the sales tax deduction may be worth more than the state income tax deduction. Even if you haven’t saved all your receipts, there is a method for claiming state and local sales taxes, according to the IRS. Consult the instructions and worksheets that come with tax forms or the IRS Sales Tax Deduction Calculator.
Timely Documentation of Charitable Gifts —It is important to get documentation of your donations to charity before you file your return rather than after. This includes donations of non-cash items and expenses related to charity. Getting proof of gifts after a return is filed may look suspicious.
Deduct Overpayments to Social Security — For workers with more than one employer in a year, there can sometimes be over-withholding. The maximum amount of Social Security tax that can be withheld from wages is $7347 (6.2% of $118,500). If more was withheld, you may be entitled to a credit on your tax return.
Dividend Reinvestment — Automatic reinvesting of stock dividends can be a sound investment strategy, but it requires recordkeeping. When determining the basis of stock for sale, it is important to include previously taxed dividends in your basis to determine how much of your gain is taxable. Some online investment platforms assist with this calculation, but you should consult your professional advisers.
If you need help with any tax matter, you should consult with a qualified tax planning attorney.
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