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It’s tax season. Let’s face it. Taxes can be confusing.
Why? 2019 brought several changes to the tax law that will have a direct impact on many people when they file their 2018 tax return.
And if you’re like most people, you’re looking for ways to increase the size of your tax refund. That’s why we put together this list of the most commonly overlooked tax deductions and credits for 2019.
First, let’s take a look at several of the most important tax changes impacting filers like you. Then we’ll get into a breakdown of easy to mix tax deductions (and a few credits!) that could significantly increase the size of your tax refund.
Tax Law Changes for 2019
For the 2018 tax year, Congress adopted one of the most drastic tax overhauls in the last half century. Some of the changes are more significant than others, while some get down into nitty gritty nuances.
Here are the must-know highlights and how they may impact your filing status for 2018:
Changes to Federal Tax Brackets for 2018
There are still a total of seven tax brackets for tax year 2018. The biggest adjustment is that rates are lower and the income thresholds changed.
How might this affect you? Generally, most people will benefit slightly from small reductions in tax rates.
You can read a more comprehensive review of the changes to the federal tax brackets here.
Changes to the Standard Federal Tax Deduction for 2018
The standard deduction nearly doubles itself from 2017 to 2018, which makes it far more attractive for many people to consider taking the standard deduction rather than itemizing deductions.
2017 Standard Deductions
Single: $6,500
Married Filing Jointly: $13,000
Head of Household: $9,550
2018 Standard Deductions
Single: $12,000
Married Filing Jointly: $24,000
Head of Household: $18,000
How might this affect you?If you’ve itemized deductions in previous tax years, the new standard deduction could exceed the total of your itemized deductions for 2018. This could save you significant time and stress.
One more item to note: The $4,150 personal exemption for each tax payer and dependent was eliminated for tax year 2018.
Changes to Child Tax Credits for 2018
Prior to 2018, tax filers could claim a $1,000 tax credit per dependent child. That figure doubles to $2,000 per dependent child for tax year 2018, and it also allows for a $500 credit for non-child dependents.
How might this affect you? This is a significantly bigger tax credit in tax year 2018, and the other good news is that more people will qualify for it, as it doesn’t begin to phase out for married filing jointly families until a $200,000 adjusted gross income threshold is reached.
Changes to Tax Benefits for Homeowners for 2018
This is where the new tax law stings the most for many people, ourselves include, in 2018.
Previously, tax payers could deduct property taxes paid on owned real estate with no cap. Beginning with tax year 2018, the deduction for state and local taxes, or the SALT Tax, is capped at $10,000. For homeowners living in locations with high property taxes, this hurts.
Another small change in the law restricts how interest paid on home equity lines of credit may be deducted. In 2018, interest may only be deducted if borrowed money was used to purchase, build, or improve a home.
How might this affect you?If you routinely take the standard deduction or plan to in 2018, it won’t affect you at all. However, if you have many itemized deductions and high property taxes, this could be a game changer.
10 Tax Deductions and Credits You Can’t Afford to Miss
Now, let’s take a look at several of the most commonly overlooked tax deductions and credits. Keep in mind, tax deductions reduce your overall taxable income, while in most cases, tax credits provide dollar-for-dollar relief on any tax burden you may bear.
Please note: You should always consult a tax professional to be certain whether potential tax deductions and/or credits apply to your scenario.
1. Child and Dependent Care Tax Credits
This credit allows for a credit between 20% and 35% of up to $3,000 of day care costs for a child under age 13, an incapacitated spouse or parent, or another dependent, provided this care allows you to work. This amount doubles to $6,000 for two or more children or dependents.
2. Charitable Donations Tax Deduction
This deduction allows filers who itemize their tax deductions to subtract the value of all charitable gifts, including cash and donations of personal property (clothing, vehicles, etc.).
3. Deduction for State and Local Taxes
As highlighted earlier, the deduction for state and local taxes is capped at $10,000 for tax year 2018.
4. Child Tax Credits
This credit could net you up to $2,000 in credits per child or up to $500 for non-child dependents.
5. Earned Income Tax Credit
If your 2018 adjusted gross income is less than $55,000 this credit could get you up to $6,431 depending upon the number of children you have, your marital status, and your exact income. This is a complicated credit, so we recommend you consult a professional. If you’re filing your taxes yourself or using software, be sure to read the fine print rules carefully.
6. Student Loan Interest Deduction
Calling all millennials: If you have paid student loan interest in 2018, you can deduct up to $2,500 in interest paid directly from your taxable income. It’s not exactly a good reason to keep your student loans around (in fact, we still recommend that you pay them off as fast as you can), but it helps.
7. Mortgage Interest Deduction
In 2018, homeowners with a mortgage may reduce their overall taxable income by deducting the amount of mortgage interest paid.
8. 401(k) Contributions Deduction
You can funnel up to $18,500 from your paycheck directly into your 401(k) in 2018 if you’re under 50 (that figure rises to $24,500 if you’re 50 or older). Contributions aren’t taxed, thereby reducing your taxable income.
9. Home Office Deduction
If have a small business (and yes, it can be a “side hustle” like blogging, selling crafts on Etsy, a small photography studio, or even using skills from day job to moonlight as a sole proprietor) and use a space in your home regularly and exclusively for business purposes, you may write off a percentage of your rent, real estate taxes, repairs, utility costs, maintenance, and other associated expenses.
10. Educator Expenses Deduction
This deduction has been rumored to expire for years, but educators may deduct up to $250 spent on classroom supplies.
Cheap (or Free) Ways to File Your 2018 Tax Return
With these deductions and credits fresh on your mind and your W2 forms in hand, you may be ready to file your tax return. And yes, despite the current uncertainty with another possible government shutdown, the IRS has stated that they are ready to receive tax returns at this time.
If you plan to prepare and submit your own tax return in lieu of hiring a registered preparer, we recommend e-filing. It is still the fastest way to submit a return, and it also is one of the quickest ways to receive a refund.
Here are our top choices for submitting your tax return for 2018:
E-file.com – Great for Simple Returns
Whether you have a really simple tax return or plan to claim several credits and deductions, E-file is a solid choice for anyone looking to file and save money. It is a fast, reliable platform that offers prices up to 50% lower than many competitors.
Here are the top advantages of filing with E-file.com:
- They offer free tax returns for anyone who qualifies for their Basic Software. Most users indicate this process takes 15 minutes to complete.
- Filers with more complicated tax situations can file and receive a 30% discount for FinanceSuperhero readers using coupon code SAVE30 at checkout.
- If you also need to e-file a state tax return, you can save $6 using coupon code 6OFFSTATE at checkout.
TaxSlayer – Good for More Complicated Tax Returns
If you know your tax return is going to be more complicated this year, TaxSlayer offers a comprehensive tax return package that will walk you through every possible credit and deduction to see you if you qualify. Their Classic package is only $17 for federal tax returns and includes 1 year assistance with IRS notices.
Wrap-up
Filing your tax return for 2018 isn’t going to be the highlight of your week, but it doesn’t have to be hard, complicated, or expensive. With your paperwork ready and this list of often overlooked tax deductions and credits ready to go, you can get your federal and state tax returns completed today AND get the biggest possible refund.
