The Atlanta Journal-Constitution
3 ways to cut your taxes before Tuesday
This year, more than in most years, filing your taxes may appear especially daunting because there have been a lot of changes to the tax code. Fortunately, you can ignore most of them when figuring out your 2017 taxes. However, Congress did make changes t
Because of these late changes to the tax code, this may be the one year where it made sense to wait to file your taxes, especially if you delayed because you thought you weren’t getting a refund. That said, make sure to claim all available tax breaks before you push the send button and whisk your electronic return off to the IRS.
Don’t move too quickly — because today is Sunday and Monday is a holiday for Emancipation Day in the District of Columbia, you have two extra days to file this year — taxes aren’t due until Tuesday. Here are some tax breaks that you may not know about.
1. Itemize your deductions instead of taking the standard deduction. If you take the standard deduction in your hurry to get your tax return done, you might miss some key deductions.
UCLA economist Youssef Benzarti found that taxpayers left an average of $644 “on the table” by choosing the standard deduction instead of itemizing their deductions.
If you think your deductions exceed the $6,350 standard deduction for individuals, or $12,700 for married couples filing jointly, and you have some spare time, then go ahead and itemize. This may be the last time you have to incur the pain of finding those receipts because the tax bill increased the standard deduction for individuals to $12,000 and for married couples filing jointly to $24,000 for next year and eliminates or scales back some itemized deductions.
For this year, itemizing may still matter. The main categories to look at are state and local sales, income or property taxes, medical and dental expenses, mortgage interest you paid, charitable contributions, casualty and theft losses (including losses in federally declared disaster areas), and job and miscellaneous expenses, tax preparation fees and gambling losses (yes, you can deduct the cost of those losing bingo, lottery and raffle tickets that you bought, but only if the losses exceed your winnings).
You may deduct either the state and local general sales taxes or the state and local income tax, but not both. You may also be able to deduct state and local taxes on your personal property (e.g., your car or boat) under certain conditions.
As has been widely noted, the 2017 tax bill limits the deduction for state and local sales, income, real estate or property taxes to just $10,000 starting next year. This means that if you pay lots of property taxes, for example, you won’t get much of a tax break going forward. However, for your 2017 tax return, if you happened to prepay your 2018 real estate or personal property taxes in 2017, the IRS’s latest guidance says that you may be able to deduct the prepaid amount on your 2017 taxes, but only if the 2018 taxes were assessed last year.
Remember, however, that you can’t just claim these expenses. You have to keep canceled checks, financial statements, receipts and any other evidence to prove that you are entitled to these tax breaks.
If you need time to figure out whether you benefit from all of these tax breaks, then you should ask the IRS for a six-month extension to file. A filing extension, however, doesn’t extend the time you have to pay your taxes. You still have to pay your estimated taxes by April 17 to avoid being penalized even though you’ll have until October to find all the paperwork needed to file your return.
As a reminder, don’t be confused by changes, such as the overall limit on state and local tax deductions or the reduction in the mortgage interest deduction that Congress passed in December. These limits don’t matter until you file your taxes next year. And, some of them may not matter at all. The limitation on the mortgage interest deduction only applies to mortgages entered into after Dec. 14, 2017.
2. Your children may entitle you to education and dependent child tax benefits.
The main education benefits come from the American opportunity tax credit — this credit can be as high as $2,500 for qualified education expenses for each eligible student and is partially refundable — and the nonrefundable lifetime learning credit that can go up to $2,000 per tax return. You can’t double dip, however. Check out the IRS’s interactive tax assistant to find out whether you are eligible for these education credits.
You may also be able to cut your tax bill if you paid interest on a student loan, paid tuition or fees or participated in a qualified tuition program, also known as a “529 plan.” (Note: Congress considered eliminating the student loan interest deduction but, instead, kept it through 2025.) While contributions to 529 plans aren’t tax-deductible, you don’t pay tax on accumulated earnings and, as long as any funds you withdraw go toward qualified college expenses, they’re not taxable either.
You need to be careful with your 529 plan and not withdraw more than you paid for your child’s qualified higher education expenses. If you do, you will have to pay taxes and a penalty. Likewise, you can’t claim expenses for the 529 plan if you’ve already used them for the other education credits.
This means that even if your children are still in diapers, if you expect them to go to college, you should open a 529 account now. The child tax credit provides similar benefits. Families can obtain a credit up to $1,000 for each dependent child under age 17. This credit is partially refundable and phases out as income increases.
The 2017 tax bill significantly changed the education and child tax credits, so make sure to check your eligibility for these credits when you file your taxes next year.
3. Are you eligible for specific credits, such as the earned income tax credit or the retirement savings contribution credit?
The earned income credit is designed to encourage work and to offset taxes for low-income workers. It’s also refundable so that if the credit is greater than your tax liability, you’ll get money back from the IRS. These provisions are why the EITC has bipartisan support and is in no danger of being repealed. According to the Center on Budget and Policy Priorities, the average EITC was just over $3,100 for a family with children in tax year 2015.