You might not want to hear this, but it’s already time to start thinking about tax preparation. Although April feels far away, the earlier you begin planning your tax filing, the more likely it is you’ll take advantage of all the tax breaks that tax year 2018 has to offer.
This is the first year the Tax Cuts and Jobs Act of 2017 will be in effect, and this act will likely affect you and your taxes. Many of the miscellaneous itemized deductions, including unreimbursed job expenses, have been repealed for the 2018 tax year. To make it easier for you to understand how you’ll be affected, GOBankingRates put together this list of popular tax deductions — and ones you might not know about — that you can still take advantage of.
Click through to find out the best tax deductions that can save you money and lower your taxable income.
1. Medical and Dental Expenses
You can deduct medical and dental expenses for yourself, your spouse and your dependents. However, you can only deduct the amount of your total medical expenses that exceed 7.5 percent of your adjusted gross income.
2. Tax Preparation Fees (if You're Self-Employed)
Whether you do your own taxes with a tax calculator or pay someone to do them, you can write off the fees on your miscellaneous tax deductions list — as long as you’re self-employed. Costs can include tax return preparation and electronic filing fees. Before the tax reform, anyone was eligible for this deduction, but it’s now only available to Schedule C filers.
3. Home Renovation Deduction
Typically, home renovation costs are not deductible on your tax return. If you make improvements to your home for medical purposes, however — such as adding wheelchair ramps or lowering cabinets for better accessibility — you can deduct those renovations as medical expenses. If the renovations are made to increase the value of your home, however, you can’t claim them as medical-related expenses.
4. Local and State Sales Tax
Taxpayers have the option of deducting state and local general sales taxes or income taxes they paid during the tax year, but not both. Under the new tax law, the deductibility of state and local tax payments for federal income tax purposes is now limited to $10,000 a calendar year.
If you live in a state with no income tax, consider deducting state sales tax and local sales taxes that you paid.
5. State, Local and Foreign Taxes
You can claim certain taxes as itemized deductions. Apart from state and local sales tax, you can also deduct:
- Local and state personal property taxes
- Foreign, local and state real estate taxes
- Foreign, local and state income taxes
6. Jury Duty Pay
If you gave your jury pay to your employer because you were paid your salary while you served on a jury, you can deduct your jury pay from your taxable income.
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7. Early Withdrawal of Savings Penalty
If you withdrew your money early from a certificate of deposit, individual retirement account or similar account or investment, the penalty you paid could qualify as a tax deduction.
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8. Volunteer Work Donations
You can deduct certain expenses for charity work, like the cost of gas and oil if you use your car to get to and from the place you volunteer. If you don’t want to calculate the value per mile, you can deduct a standard rate of 14 cents per mile. You can also deduct the cost of purchasing and maintaining uniforms you wear to a place you volunteer or parking in a garage if that’s required. Just make sure you get documentation from the charity.
9. Bad Debt Deduction
If you lent money that you never got back, it’s considered a bad debt, which might make you eligible for a tax rebate. Generally, to deduct a bad debt, you must have previously included the amount in your income or loaned out cash. You must also show that you attempted to collect the debt and that there’s no chance you’ll be able to recoup it.
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10. Moving Expenses for Military Personnel
Previously, anyone who met the IRS distance and time tests after they relocated for a new job could take a moving-expense deduction. This deduction is suspended under the new law. However, the suspension does not apply to members of the military who move due to a permanent change of station.
11. Airline Baggage Fees (if You're Self-Employed)
If you’re self-employed and you travel for business, make sure you deduct your baggage fees. If you’re not self-employed, you won’t be able to make this deduction, so opt for an airline with low baggage fees.
12. Mortgage Interest Deduction
You can deduct the interest you paid on loans of $750,000 or less, but if you’re married and filing separately, you can deduct the interest only on loans of up to $375,000. This marks a decrease from the previous year, when the limits were $1 million and $500,000, respectively. This new limit doesn’t apply if you had a binding contract to close on a home after Dec. 15, 2017, and closed on or before April 1, 2018.
13. Mortgage Points
If you itemize, you can deduct the points — or prepaid interest — you paid to purchase or build your primary home. Typically, if you can deduct all the interest you paid on your mortgage, you can also deduct all of the points.
14. Home Sale
If you sold your home at a profit, you can exclude up to $250,000 of gains from your income. If you’re married and filing jointly you can exclude $500,000.
15. Self-Employed Health Insurance
Health insurance is tax-deductible for self-employed taxpayers. If you were self-employed in 2018, you can deduct premiums you paid for medical and dental insurance, as well as for qualified long-term care insurance.
16. Investment Interest Expenses
Prior to the change in the tax law, investors could deduct expenses such as investment advice, IRA custodial fees and accounting costs. However, these miscellaneous deductions are eliminated for 2018. You can, however, claim a deduction for your investment interest expenses, which is the interest paid on money borrowed to purchase taxable investments. The amount that you can claim for deduction is capped at your net taxable investment income for the year.
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17. IRA Losses
You can claim losses on traditional and Roth IRAs as a miscellaneous itemized deduction, but only in rare cases. For Roth IRAs, all accounts must be closed, including those that earned a profit. You won’t need to close a traditional IRA — it is treated separately. You must show a loss from your tax base to qualify.
18. Repayment of Income
If you had to repay income that you included in ordinary income in an earlier year, you might be able to deduct the repaid amount. In most cases, you can claim a deduction only for repayment of income if your repayment qualifies as an expense or loss you had at your business, trade or in a transaction.
19. Gambling Losses
Gambling losses are one of the few itemized deductions that will remain intact for the tax year 2018. If you suffered gambling losses, you can deduct up to the amount of gambling income you reported. You can claim your losses as an “other miscellaneous deduction,” but be prepared to show proof of those losses.
If you paid alimony as part of a divorce or separate maintenance decree, you can deduct the amount you paid. Your payments qualify as alimony if:
- You and your spouse or former spouse do not file jointly
- Payments were made with cash, check or money order
- You are legally separated and don’t live in the same household as your former spouse
- Child support is not part of your payment
- Payments went to your spouse or former spouse
Unfortunately, alimony will no longer be deductible for those who get divorced after Dec. 31, 2018, according to the new tax law.
21. Car Registration Fees (if You're Self-Employed)
If you meet certain requirements, you might be able to include some or all of your vehicle registration fees in your tax deductions. If part of your registration is deductible, you must itemize your deductions. This deduction — which previously applied to all employees — now only applies to those who are self-employed.
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22. Some Disaster Losses
Prior to the change in tax laws, any loss or theft related to your home, household items or vehicles was tax deductible. However, deducting for personal casualty and theft losses is now suspended, unless the loss occurred in a federally declared disaster area.
23. Military Reservist Travel Expenses
If you travel more than 100 miles from your home as a military reservist, you can subtract travel expenses from the income you report on your tax return. Qualifying expenses include transportation, meals and lodging, with some exceptions.
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24. Health Savings Account Contributions
Health savings accounts are tax-exempt accounts you use to pay or reimburse certain medical expenses. You can claim a tax deduction on contributions you or someone other than your employer made to your account.
See: Why You Need an HSA
25. IRA Contributions
Although IRS rules don’t allow deductions for Roth IRA contributions, you might be able to claim the amount you put in a traditional IRA, as long as you or your spouse doesn’t have an employer-based retirement account. You can take a deduction up to the full amount of allowable contributions, which is $5,500, or $6,500 if you are 50 or older.
26. 401k Contributions
401k plans provide special tax status for retirement savings and immediate tax benefits. When you contribute to your 401k, you’ll effectively lower the amount of your taxable income, so there’s a smaller impact on your take-home pay.
27. Dependent Care Flexible Spending Account
A dependent care flexible spending account lets you set aside pretax money for expenses related to caring for a child — this is not the same as the child tax credit, which you use for a disabled spouse, parent or other mentally or physically handicapped dependent. You’re allowed to contribute up to $5,000 tax-free toward an FSA every year.
Whether you take the standard deduction or itemize, you can deduct up to $4,000 in qualifying higher education tuition and fees you paid for yourself, your spouse or a dependent for tax year 2018. If you’re married but filing separately, you don’t qualify for this deduction.
29. Membership Dues (if You're Self-Employed)
You can deduct professional society membership dues — but only if you’re self-employed. Before the latest tax reform, this deduction — including union dues — was available to all employees.
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30. Work Uniforms (if You're Self-Employed)
Prior to the latest tax reform, anyone who was required to wear a uniform or specialized clothing as part of their job could deduct this expense. However, this deduction is now only available to those who are self-employed.
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31. Home for Business Use (if You're Self-Employed)
If you use part of your home for business, you might be able to deduct your home office as an expense. To qualify for this deduction, you must regularly use part of your home exclusively for conducting business and you must show that you use your home as your principal place of business. Prior to the change in tax laws, anyone who worked from home could qualify for this deduction, but now only those who are self-employed are eligible for this tax break.
32. Car for Business Use (if You're Self-Employed)
If you use your car for your job or business, you might be able to deduct the costs. You can either use a standard mileage rate or the actual-expense method, which is what it actually costs to operate the car for its business-use portion. However, this only applies if you are self-employed under the new tax laws.
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33. Business Travel Expenses (if You're Self-Employed)
You might be able to deduct business expenses you incur while traveling for work. Costs could include transportation, meals, lodging, laundry and business calls. Any expenses that are considered extravagant or lavish don’t qualify for the business travel expenses deduction. Under the new tax law, only people who are self-employed can get this deduction.
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34. Educational Expenses
Under the American Opportunity Tax Credit, you can deduct up to $2,500 per student for four years of post-secondary education. Good news: The credit has now been made permanent.
35. Work-Related Meals, Entertainment and Gifts (if You're Self-Employed)
Meals and entertainment expenses for business purposes are deductible up to 50 percent, and costs for gifts for business purposes can be deducted in total or in part, depending on the circumstances. This deduction is only available to those who are self-employed under the changes for the tax year 2018.
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36. Earned Income Tax Credit
The earned income tax credit is a commonly overlooked tax credit for low- to moderate-income individuals. Although it’s not considered an IRS deduction, the EITC is a refundable tax credit meant to supplement income. In 2017, the amount ranged from $510 to $6,318. The IRS has not yet released the amounts for 2018.
37. Educator Expenses
K-12 educators can deduct up to $250 of unreimbursed expenses for books, supplies and computer equipment. To qualify, you must work 900 hours in a school year. Deductions can go up to $500 for married couples filing jointly if both parties are educators who incurred expenses.
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38. Student Loan Interest Deduction
You can deduct some or all of any qualified student loan interest you paid during the tax year. You can deduct the lesser of $2,500 or the amount you actually paid. You can’t claim the deduction if you’re married and filing separately or if you or your spouse is listed as a dependent on someone else’s tax return.
39. Cash Donations
You can deduct cash donations to IRS-approved charities for up to 50 percent of your adjusted gross income. You must have written records of donations to deduct cash gifts in any amount — a copy of a bank record or statement from the organization will work.
40. Noncash Donations
If you itemize, you can claim the fair market value — the price for which you otherwise could have sold the items — of clothing and household items you donated. If you plan to donate your car, make sure you donate to a qualified charity, like a 501(c)(3).
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41. Senior Tax Deduction
Here’s some good money news for seniors: If you and your spouse were 65 or older by the end of the tax year, you’re eligible for a higher standard deduction.
42. Standard Tax Deduction
Although many itemized deductions have been suspended going into the 2018 tax year, the standard deduction has increased. It’s now $24,000 for married couples filing jointly and for qualified widows and widowers. For single filers and married couples filing separately, the deduction is now $12,000. If you file as head of household, you can deduct $18,000.
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Barri Segal contributed to the reporting for this article.