TAX WRITE-OFFS YOU CAN DEDUCT IN 2019

2019 Taxes

Tax day is right around the corner, and I bet you want to make the most out of eligible tax write-offs (also commonly referred to as deductions). In case you’re confused as to what a tax write-off is to begin with, it’s essentially an expense that you can deduct from your taxable income when you’re filing your tax return. Below is helpful information on some of the more popular write-offs you can deduct in 2019.

Write-offs are a smart way to save money and maximize your tax return. However, keep in mind that how much you benefit is also dependent on the income bracket you fall into. Corporations, small businesses, individuals, and self-employed businesses are all able to write-off expenses on their income taxes.

Here are a few of the most common tax write-offs that you can deduct from your taxable income in 2019:

Business car use

If you use your vehicle for business purposes only, you may deduct the expenses incurred to operate the vehicle. However, if you use the car for both personal and business purposes you would only be able to deduct the cost that is associated with the business side. Typically to figure out how much you can deduct from your car expenses you can calculate the standard mileage rate and/or actual expenses.

Charitable contributions

Not only can your contributions help make a meaningful difference and leave an impact, you can also write eligible contributions off on your taxes. The IRS states that you may deduct charitable contributions of money or property made to qualified organizations if you itemize your deductions. Generally, you may deduct up to 60 percent (this was bumped up from 50% after new tax laws went into effect) of your adjusted gross income, but 20 percent and 30 percent limitations apply in some cases. Keep in mind that there are perimeters around donating to the non-profit of your choice.

Medical and dental expenses

High medical expenses and emergency situations unfortunately happen quite often. If you’ve incurred higher than usual hospital bills, you may be able to itemize and deduct medical and dental expenses for yourself, your partner, and your dependents if the total expenses you incur exceed 7.5% of your adjusted gross income. Payments made to doctors, chiropractors, dentists, psychiatrists, and surgeons may qualify and medical care expenses that include diagnosis, cure, treatment, prevention of disease all qualify. Medical expenses that cannot be deducted include expenses that have been reimbursed by your employer, voluntary cosmetic procedures, vitamins, and personal health products.

Health Savings Account

Chances are you’re already contributing into your Health Savings Account (HSA) but did you know that you can also write it off as a deduction? If you have an HSA through your employer, you are able to claim a deduction on the monetary contributions that you have made into the account the previous year. Keep in mind, that you cannot include the contributions your employer makes but only your own. You also cannot claim this deduction if you are covered by other health insurance plans such as a PPO or an HMO. The limit for 2018 is $2,650.

Childcare

If in 2018 you paid for daycare, babysitters, camps, and other forms of childcare you may qualify for childcare deductions. The Child Tax Credit (CTC) helps parents with dependents under the age of 17 (16 or younger). The credit is $2,000 per qualifying dependent. There have been changes to the Child Tax Credit from a tax plan President Donald Trump signed in late 2017.

Moving expenses

If you moved for a new job in 2018 brush up on a few important changes made to moving expenses, you can deduct in lieu of the tax reform. Starting in the 2019 filing year, the cost of moving boxes, moving vans, movers, and packers can no longer be tax deducted under the new tax reform law that was passed in late 2017. The changes apply to non-military civilians. Active duty military can still deduct qualifying moving expenses as long as they haven’t received reimbursement from the government. Active military can include moving expenses such as travel, temporary lodging, moving home goods, and shipping cars and pets if they are moving due to a change of station or military order.

Student loan interest

If you’re one of the millions of Americans paying back your student debt the good news is you’re able to deduct the interest you’ve paid as long as it’s a qualified loan (unfortunately if your uncle loaned you money for school that doesn’t count). Tons of changes were made after the tax reform but thankfully the student loan deduction remained untouched. If you’re paying back your student loans, you’re eligible to deduct up to $2,500 of student loan interest for 2018. Before filing your taxes, wait for your lender to send you a 1098-E form that you can report on our tax return. You may also qualify for additional education expenses such as tuition, course materials such as books, supplies, and equipment.

Home offices expenses

Home office expenses can get a bit tricky so tread carefully. The caveat is that you may only claim these deductions if you use a section of your home exclusively for business purposes. Be it a designated space or room that is purely for business — no exceptions. Dueling it as a guest room or rental space would disqualify you. Your home office business deductions are based on the percentage of your home used for the business or a simplified square footage calculation.

Teacher expenses

Teachers who purchase school materials out-of-pocket are able to deduct up to $250. If you’re married and your spouse is also an educator, you’re eligible to file up to $500 jointly. Kindergarten through 12th grade instructors, counselors, principals, and aides that work at least 900 hours a school year are able to write off school incurred expenses such as books, supplies, computer equipment, and other supplementary materials.

Accounting fees

You can deduct accounting fees that you incurred for your business such as setting up your accounting books, preparing your annual tax return, or accounting counsel you received for your business. Basically, if you sought out the counsel of an accounting professional to help you with your business you most likely qualify for a deduction on your tax return.

Traditional Roth IRAs

While you’re not able to deduct Roth IRAs, you may be able to deduct a Traditional IRA. If you and your spouse are covered by a retirement plan at work and your income exceed a designated level, then your deduction is limited. However, if you have no retirement plan at work, you’re allotted your deduction in full.

American Opportunity Tax Credit

The American Tax Credit is a credit of up to $2,500 per qualified student. If the credit brings the amount of tax you owe to zero, you can possibly have up to $1,000 refunded to you. To qualify you must be pursuing a degree and be enrolled at least half-time for at least one academic period in the tax year, you must not have a felony drug conviction, and must not have claimed the AOTC or the Hope credit for more than four tax years.

Mortgage

If you’re a homeowner, you can also deduct mortgage interest tax on your annual tax return. Starting in 2018, the deduction has been scaled back to interest on debt up to $750,000, instead of $1 million, for buyers who bought homes on or after December 15, 2017. According to the IRS, for homes bought before December 15, 2017 there is no change. However, for homes bought December 15, 2017 and onward, you may deduct the interest you pay on mortgage debt up to $750,000 — or $375,000 if married filing separately.

Elderly parents as dependents

When you think of dependents, I bet you default to thinking only children qualify as dependents for a tax return. However, if your parents are elderly and you have been caring for them you can count them as a dependent. In order to qualify you must have provided more than half of your parent or parents support in the prior tax year. Your parent must also meet the income requirements set by the IRS — which tend to change from time to time.

 

INDEXING

Tax Brackets and Other Tax Numbers Are Changing

Why Tax Brackets and Other Tax Numbers Are Changing

It all has to do with a provision in the tax code known as indexing. Each year, the IRS adjusts tax brackets to account for inflation. For example, if the inflation rate for the past year is 2%, the IRS will adjust all income brackets up by roughly 2%.

For example, if a particular tax bracket begins at a taxable income of $40,000 one year, that number will be increased to $40,800 for the following year. The IRS also likes round numbers. Percentages will be no better than approximate, since numbers will be rounded up in increments of $25, $50, or even $100.

The purpose of indexing is to eliminate what’s known as bracket creep. That’s where you get pushed into a higher tax bracket due to pay raises that do little more than match the rate of inflation. Indexing allows you to stay in the same tax bracket, despite a slightly higher income level.

Until 2017, indexing was based on changes in the Consumer Price Index (CPI). But beginning in the 2019 tax year, indexing will be based on the Chained Consumer Price Index. The change is part of the Tax Cuts and Jobs Act of 2017.

Indexing applies not only to tax brackets, but also to other relevant tax numbers, like the standard deduction and the alternative minimum tax (AMT).

The New 2019 Federal Income Tax Brackets and Rates for Capital Gains

Capital gains are taxed at different rates from ordinary income. For example, while there are seven tax brackets for ordinary income, ranging from 10% to 37%, there are just three for capital gains, ranging from 0% to 20%.

This is a major advantage for anyone who has substantial capital gains income. The capital gains tax rate is substantially lower than the tax rate on a comparable amount of ordinary income.

Just as is the case with the income brackets for ordinary income, the income brackets for capital gains have also been increased slightly from 2018.

The Standard Deduction for 2019

As you probably know – or you’ll find out when you file your 2018 tax return – personal exemptions have been eliminated under the new tax law. The $4,050 you could claim up until 2017 for yourself, your spouse and any eligible dependents is now history.

In its place, the standard deduction has been roughly doubled. That will work out well for singles and couples, but it will be a definite negative for anyone with dependents.

And like other numbers in the tax code, the standard deduction will be increasing slightly for 2019.

Other Tax Numbers Changing in 2019

Qualified Business Income Deduction. Beginning in the 2018 tax year, the new tax law provides small business owners with a 20% deduction against business income. It’s officially referred to as Section 199A deduction and it applies to small businesses, other than “C” corporations. There are income limits against which that deduction can be taken.

Alternative Minimum Tax (AMT). The AMT was created in the 1960s to impose taxes on taxpayers who claim an excessive amount of tax breaks. It provides a second set of tax rates that will be imposed if they exceed taxes as their taxable income is normally calculated.

The tax code provides an income exemption to the AMT, below which the tax will not apply. There is also in an income phase-out beyond which the exemption no longer applies. Both are indexed for inflation.

Retirement Contributions.

Base retirement contributions are increasing by $500 in 2019. However, catch-up contributions for taxpayers 50 and older have not been increased.

For 2019, retirement plan contributions will look like this:

  • IRAs – $6,000 (up from $5,500 in 2018), plus a $1,000 catch-up contribution if you’re 50 or older.
  • Employer sponsored plans – 401(k), 403(b), 457, TSP – $19,000 (up from $18,500 in 2018), plus a $6,000 catch-up contribution if you’re 50 or older.

The lifetime gift and estate tax exemption. This is scheduled to increase from $11.18 million in 2018 to $11.4 million in 2019. The annual gift exclusion will be $15,000, unchanged from 2018.

Other Major Changes Taking Place in 2019

The elimination of the Affordable Care Act (ACA) penalty. One of the more controversial provisions of the ACA was the imposition of a penalty on consumers with no health insurance coverage. The new tax law is finally ending that penalty. However, in one of the lesser known provisions of the new tax law, the penalty will continue to be in force for 2018. The final termination of the penalty doesn’t take place until the 2019 tax year.