Big Tax Breaks that You Might Be Missing Out On
Most taxpayers are aware that the standard deduction increased a few years ago, courtesy of the Tax Cuts and Jobs Act of 2017. Due to the size of that increase, many of those taxpayers switched from itemizing their deductions to taking the standard deduction instead. But is that truly the better option? The truth is, there are many large tax breaks that taxpayers miss, which might make it worth your time to itemize again. Keep reading to learn more.
Itemized versus Standard Deductions
Obviously, individual tax deductions and credits don’t mean much if you’re taking the standard deduction. So before addressing those tax breaks, the first question you need to address is whether or not you should be itemizing. The standard deductions for this year are:
- $12,550 for individual taxpayers
- $18,800 for heads of households
- $25,100 for joint taxpayers
If you’re confident that your itemized deductions would fall below the applicable threshold for you, than you’re better off taking the standard deduction. However, we encourage you to keep reading to ensure that you’re including all of these big tax breaks in your calculations.
American Opportunity Credit
Whether you’re paying for your child’s college education or you went back to school yourself, the American Opportunity Credit can offer a major tax break for that college tuition and all those textbooks you’re paying for. You can receive a credit of up to 100% of the first $2,000 in eligible college expenses, and up to 25% of the next $2,000. This means you can get an annual credit of $2,500—and that’s for each student you’re supporting. So, if you’ve decided to go back to college while also paying for your child’s education, you can receive a maximum annual credit of $5,000.
As with most tax credits, the American Opportunity Credit phases out based on your income level. If you’re an individual filer making under $80,000 or a joint filer making under $160,000, you should qualify for the full credit amount for each student.
Lifetime Learning Credit
What if you haven’t actually gone back to college, but you’re still investing in your education? There’s a tax credit for that too. If you take courses to improve your job skills or acquire new marketable skills, you could qualify for up to $2,000 per year. This is based on 20% of up to $10,000 in expenses for post-high-school courses, including those taken at a vocational school or community college.
This credit phases out at the same income levels as the American Opportunity Credit.
Charitable contributions aren’t generally missed altogether. Most taxpayers are relatively consistent about deducting monetary donations made to eligible charities. However, those little donations that you make—particularly of non-cash items—can add up to big deductions by the end of the year.
Many people donate clothing, toys, and other unneeded items to organizations like Goodwill or The Salvation Army, and those items have value—a value that can be deducted on your tax return. Or, if you purchase items for a school fundraiser, you can deduct those expenses as well.
While these deductions are much harder to track, it can be worth the effort in the end. Request a receipt when you donate items, and keep your purchase receipts for any expenses accrued for charities. We recommend digitizing these receipts to ensure they don’t get lost; at the end of the year, at them up and see just how much more you could deduct on your return.
Many parents rely on professional childcare on a daily basis, and those costs can be quite high. If you use childcare regularly, make sure you’re taking advantage of the childcare tax credit. This tax credit can be worth up to 35% of what you’re spending on childcare every year.
On average, American parents will spend about $800 per month in childcare for each child, adding up to $9,600 per year. If you qualify for the maximum credit, this would mean reducing your tax bill by $3,360—a significant amount for any taxpayer—and that’s if you’re only using childcare for one child.
Owning a home can be expensive, but the IRS offers many tax deductions for homeowners that can help to offset those costs. These deductions include:
- Mortgage interest
- Property taxes
- Medically necessary home improvements
- Mortgage insurance
- Home equity loan interest used to improve or repair your home
To ensure that you’re not missing out on any vital tax deductions or credits, contact one of our experienced and knowledgeable CPAs. We’ll review the tax breaks you qualify for, and help you determine if you should itemize or take the standard deduction.
Camputaro and Associates
Certified Public Accounting Firm
136 N. Orchard Street, Suite 8
Ormond Beach, FL 32174