7 Tax Deductions You Should Know About
April 15 is almost here, and millions of taxpayers are working hard to get their returns completed in time. For many, the relentless pursuit of last-minute tax breaks provides enough incentive to get across the finish line.
However, especially with tax reform now in the books, it's easy to forget what tax deductions are available. With that in mind, here are some of the more common deductions you'll still find in the tax laws, so you can make sure that you've taken full advantage of whichever ones you can.
1. Cash charitable donations
Most people understand that when you write a check, donate via text message, or charge a gift to a credit card, you can deduct money that goes to charity. Yet all too often, it's easy to forget the $5 you dropped into a firefighter's bucket at a traffic light or the cash you put in a coffee can at work to go toward charitable causes. However, cash donations are legitimate deductions, and as long as they're small, you won't need the sort of documentation that larger gifts can require.
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2. State and local taxes, when paid
There's been a lot of attention to the new $10,000 limitation on deductions for state and local taxes. Yet what often trips people up is that they fail to include money they spent on taxes during 2018 if it was to pay a tax bill from a different year. Whether it's a property tax bill that's due half this year and half next or a state income tax bill for the 2017 tax year that you paid in early 2018, what matters for deduction purposes is when you actually paid the tax, not the period in which it was incurred.
3. State sales tax
Along the same lines, many people don't realize that they have a choice when it comes to claiming a deduction for taxes paid. You can deduct either your state income tax or your state sales tax, but not both. For those taxpayers who live in states without an income tax, the sales tax deduction is especially useful, particularly because there are safe-harbor amounts you can claim based on your income without having to track every single penny of sales tax you paid throughout the year.
4. Driving for charity
Most people know that if you drive for business, many employers use the IRS rate to calculate reimbursement. But many people don't realize that there's a different amount that you're allowed to take as a deduction if you drive for charitable purposes. The rate is $0.14 per mile for the 2018 tax year, and you're allowed to take it just like any other charitable deduction.
5. Early withdrawal penalties on CDs
If you have a certificate of deposit at a bank and you needed to get your money out before it matured, then you probably had to pay an early withdrawal penalty. You're allowed to take the amount of the penalty you paid as a deduction, and, best of all, you don't have to itemize to do so.
6. Student loan interest
The student loan interest deduction applies to most loan repayment situations, and there's even a rule that many people don't know. If you're an adult who's not a dependent and your parents paid some of your student loan payments, then you can still claim the deduction on the portion of those payments that represents interest. The reason: Your parents are deemed to have given the money to you and you're deemed to have then made the loan payment.
7. Points on refinanced mortgages
In some cases, if you pay points on a new mortgage loan, you get to deduct the entire payment right away. But on refinanced mortgages, you'll typically have to take that deduction in small portions each year for the life of the mortgage loan. It's easy to forget those future deductions down the line -- but doing so can be costly.
Save what you can
It's hard to keep deductions straight, but you deserve to take as many as you can. By being aware of these and the many other tax breaks available to you, you'll be able to keep your tax bill as low as it can go.
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