Boost Your Tax Refund
Six Ways to Increase Your Refund After Tax Reform
The Tax Cuts and Jobs Act has impacted several important itemized deductions going into tax year 2018. If you’ve itemized in the past, you might be feeling powerless over your tax refund. Fortunately, there are ways you can reduce your adjusted gross income (AGI) even after the tax law changes. Every dollar that reduces your AGI not only reduces your taxable income, but it may help you qualify for other deductions as well, and that could boost your refund.
1) Save for your retirement
You can still deduct contributions made to your 401(k) and traditional IRA, even if you don’t itemize. You can invest up to $18,500 in your 401(k) and up to $5,500 in your IRA ($6,500 if you’re over age 50). If you have a Roth IRA, you won’t be able to deduct the contributions, but remember that your qualifying withdrawals aren’t subject to tax, either. The maximum contribution for Roth IRAs is still $5,500 in 2018 as well.
Certain limitations do apply. To learn more about retirement savings contributions, visit the IRS website.
2) Pay your student loan interest
You can still deduct up to $2,500 in interest on student loans you are obligated to pay, even if you don’t itemize. That did not change under the new tax plan.
3) Deduct your educator expenses
If you are an eligible teacher, you are allowed to deduct up to $250 of qualified expenses during the tax year. If you and your spouse are both educators, you could deduct up to $500 per household. Learn more about how to qualify for the deduction here.
4) Pay your self-employment tax
If you are self-employed, the IRS expects you to cover the taxes for Medicare and Social Security on your own. In return, you get to deduct a portion of those taxes from your net income. With the self-employment tax rate at 15.3% of your business earnings, that’s no small deduction.
Not sure if you should be paying self-employment tax? Read more about your obligations here.
5) Donate to charity
Here’s the thing: charitable donations are only deductible if you itemize. If you take the standard deduction this year the tax incentive to donate goes away. At the same time, the TCJA is increasing the limit on how much you can deduct for a cash donation if you do plan to itemize. You can now deduct up to 60% of your adjusted gross income for cash donations. Long-term stocks and property are deductible up to 40% of your AGI. What can you do? Consider this: rather than making an annual contribution, you could save up and donate a larger sum to charity every other year. That should also be the year you itemize. A larger donation means a larger deduction for you, so you would still receive the tax break for your good deed.
6) Deduct your medical expenses
For one more year, you can deduct your qualifying unreimbursed medical expenses over 7.5% of your AGI. That threshold is about to increase to 10% in 2019, so take advantage of the delayed tax law change on your 2018 tax return.
This article is up to date and accounts for tax law changes for tax year 2018 (tax returns filed in 2019). Learn more about tax reform enacted under the Tax Cuts and Jobs Act here.
Source: Taxslayer
