Taking the right deductions is key to saving on your annual federal income tax payments. The rules for deductions change every time a new tax bill is passed (such as the one voted into action in 2018), but these are some of the best deductions you can still take in 2019.
1. Charitable Contributions
Charitable contributions are a long-time stalwart of tax deductions. If you’re part of the growing trend of Marie Kondo disciples who are emptying out anything that doesn’t “spark joy” in your life, be sure to donate those unwanted items to a local charity. Get the receipts, and hand them over to your accountant for your upcoming filing!
Remember to keep track of any mileage your drive while heading to your donation destination, as that could be an additional deduction for you!
2. Contributions to your IRA or 401k
If you’re paying into your retirement savings (and you really should be) that money can make for a nice tax deduction. It’s like paying yourself twice—once on the deduction, and again down the road! These contributions can also serve an important last-minute tax service, allowing you to shave taxable income off of your return in order to put yourself into a lower tax bracket.
There are age-based limits in place to how much you can contribute to these accounts, and we recommend contributing the maximum amount possible if you can afford it. Retirement requires a lot more money than you might expect, especially as inflation continues to sap the value from your dollars. The sooner you start paying into it, and the more you contribute, the better off you’ll be!
3. Your Home Office
Home office deductions for salaried employees are a thing of the past thanks to the new tax bill, but you may still be able to save on them if you’re self employed. Of course, the rules around these deductions are strict. Your office space must be used exclusively for business, and it has to be your primary working location. So if you occasionally drag your laptop into your basement to do some work, that’s not going to cut it.
If you have a dedicated office space that qualifies, you’ll be able to deduct a proportional percentage of utilities, mortgage interest, property taxes, and other expenses. Additional business-related expenses might also offer a deduction, such as the cost of a dedicated phone line for your business.
4. Health Insurance and HSA Contributions
Medical expenses can wreak serious havoc on any budget, especially when they come out of nowhere. But there’s a little good new: if they exceed 7.5% of your adjusted gross income in 2018, medical expenses are deductible (this threshold raises to 10% for 2019). It’s a small comfort when dealing with a major medical expense, but it’s better than nothing.
If you have a Health Savings Account for your medical expenses, you may be able to deduct contributions similarly to the way you can with a 401k or IRA plan (as detailed above). Combining HSA and retirement contributions gives you a pretty solid opportunity to lower your qualifying income and save on your taxes.
If you’re self-employed and pay for your own health insurance coverage, we have some more good news for you: you may be able to deduct 100 percent of your premium cost.
5. Other Tax Payments
Another popular tax deduction has gone the way of the dinosaurs, with state and local taxes no longer being fully deductible from your federal payments. These deductions are now capped at a total of $10,000, which is lower than what many people are paying in property taxes alone. But a deduction is a deduction, and you’ll want to make sure you’re claiming as much of one as you possibly can.
Consult The Pros
As always, every person’s tax filings are unique. And while these deductions are some of our favorites, they may not be the most important for your individual needs. The best way to make sure you’re paying what you owe (without overpaying) is to hire a professional to review your return and come up with a plan.