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The Tax Cuts and Jobs Act of 2017 ushered in a number of changes impacting taxpayers at all income levels. These changes include new tax rates and adjusted income thresholds, as well as a significantly higher standard deduction ($12,000 for single filers and $24,000 for married couples filing jointly). The new law also eliminated a number of itemized deductions, while limiting others. As you prepare to file your first return under the new tax law, one of the first decisions you’ll need to make is whether to take the standard deduction or itemize.
Under the new law, if you have less than $12,000 in deductible expenses ($24,000 for a married couple), it makes sense to take the higher, standard deduction. However, keep in mind, even if you take the standard deduction, you may still be able to claim certain “above-the-line” deductions to further lower you tax bill. These deductions are subtracted from your income before your adjusted gross income (AGI) is calculated for tax purposes. Below are several deductions you may be eligible to take, whether or not you itemize on your 2018 return. Since this is not a complete list of deductions you may be eligible for, be sure to consult your tax professional for more information.
Traditional IRA contributions may be deductible if you meet the eligibility requirements. Remember, you have until April 15, 2019 to make an IRA contribution for tax-year 2018. IRA contribution limits for 2018 are $5,500 for those under age 50 with earned income from wage earnings. Those age 50 and older in 2018 are eligible to make an additional catch-up contribution of $1,000, for a total annual IRA contribution of $6,500 for tax-year 2018.1
Health savings accounts (HSAs) are generally available to individuals with high-deductible health plans to help offset out-of-pocket healthcare costs. Contributions are tax deductible on your federal return up to $3,450 for individuals in 2018, and $6,900 for qualifying family plans—as long as you made them with after-tax dollars. (You can’t deduct contributions made through an employer plan using pre-tax dollars.) Those age 55 or older in 2018 were eligible for an additional $1,000 in catch-up contributions for a total of $4,450 for individuals, and $7,900 for families.2
Penalties on early withdrawals from CDs are also deductible, whether or not you itemize, regardless of the amount of the penalty.3
Alimony that you pay to a former spouse may be deducted as long as 1) your divorce agreement was signed before December 31, 2018, and 2) the payments are disclosed in your divorce agreement. You must also report your former spouse’s Social Security number so the IRS can verify that your ex-spouse reports the same amount as taxable income.3
This information is not provided as tax advice. Be sure to consult your tax professional with questions regarding these and other tax matters. If you have questions about tax-advantaged planning and investment strategies, call the office to schedule time to talk.