"Yay, it's tax time!"
Said no one ever. But as unpleasant as tax season is, it's something we all have to do, and it pays, literally, to do it well. While it might be tempting just to fill out your 1040 form and hit submit to get it over with and check it off your to-do list, taking a little extra time can mean big bucks at refund time.
The tax code had some pretty major changes over the last couple of years, including doubling the standard deduction last year and an additional small increase for this year's filing season. That means for those married filing jointly, the standard deduction will be $24,400, single filers can expect a standard deduction of $12,200, and those filing as head of household can expect their standard deduction to be $18,350. While those numbers seem pretty big, it may be worthwhile to check your deductions to see if itemizing makes more sense. Aside from mortgage interest and student loan interest, there are several other deductions you could make that might mean more cash in your refund or less owed on your tax bill.
What Are Tax Deductions?
Let's start with the basics: A deduction is an expense you can subtract from your adjusted gross income (AGI) to help lower your taxable income. At tax time, you add up your pre-tax income for the year to get your gross income. Your adjusted gross income, which is the more important of the two numbers where the IRS is concerned, is your gross income minus taxes and other adjustments. Adjusted gross income is also known as your taxable income. If the taxes you pay during the year are more than the taxes calculated off your AGI, you get a refund. If the taxes you pay during the year are less than the taxes calculated off your AGI, you get a bill.
Deductions are expenses that lower your AGI, or taxable income. You want that number to be as low as you can legally make it, to lower the risk of having to pay out at tax time. And there are a lot of deductions. The IRS makes it pretty easy, believe it or not, to lower your AGI. If you tally up your deductions—not to be confused with tax credits, which are credits to your actual tax owed and don't affect your AGI at all—and the sum is higher than the standard deduction, you should itemize. Itemizing deductions means you list out all your deductions and take that number from your AGI. The standard deduction nearly doubled in 2018, so not many people itemize anymore, but it's definitely worth looking into.
So what's all this mean if you have kids? Everyone's tax situation is different and not everyone can take the same deductions, but these are the most questions parents have about deductions and what's deductible.
Is Daycare Tax Deductible?
In a word, no, child care expenses are not tax-deductible, but you can take advantage of the Child and Dependent Care tax credit, which provides a credit on your overall taxes owed, effectively reducing the amount you owe.
Is Student Loan Interest Tax Deductible?
Considering the sheer volume of student loan debt many graduates have, being able to deduct student loan interest could make a big difference in your taxes. Student loan interest is deductible, but not for everyone. If your modified adjusted gross income (which is your adjusted gross income before a few deductions) is less than $80,000 (or $160,000 for joint filers) you can deduct student loan interest that meets the following criteria: it's on a loan taken out for your own education, it's on a loan you took out for your child or other dependent's education, or it's on a loan you're legally required to pay back.
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However, if you are filing taxes as married filing separately, you may not be able to deduct student loan interest.
Are Charitable Donations Deductible?
Charitable donations are deductible for as much as 50 percent of your AGI. To qualify, the organization you donate to, either cash or property, must be a qualified organization per the IRS rules. Donated goods or property can be deducted up to its fair market value and contributions where you receive an item, like a canvas tote bag or t-shirt, you can only deduct the amount over the price of the item. So if the tote bag is valued at $25 and you made a donation of $40, you can only deduct $15 from your taxes. It's important to remember to keep your receipts for all charitable donations for accuracy at tax time.
Is Child Support Tax Deductible?
Child support payments are not deductible. According to the IRS website, "Child support payments are neither deductible by the payer nor taxable to the recipient. When you calculate your gross income to see if you're required to file a tax return, don't include child support payments received."
Are Medical Expenses Deductible?
Some medical expenses are deductible. According to tax attorney Shann Chaudhry, "Medical expenses can be deductible if they exceed a certain threshold. For the 2019 tax year, they have to exceed 10 percent of adjusted gross income," explains Chaudhry. "Any amount that exceeds the threshold is deductible. So in cases with major hospitalization, expensive medication, and expensive treatments this is definitely something that should be considered." This means if your out-of-pocket medical expenses for the year are greater than 10 percent of your AGI, you can use them as a deduction.
Is College Tuition Tax Deductible?
College tuition and fees are not deductible and haven't been since 2017. If you would like to file an amended return and deduct tuition from returns for tax years prior to 2017, you can, but you can't file amended returns electronically and they can take up to 4 months to be processed.