What is the best way to reduce your income taxes? Keep good records. Many ordinary expenses are tax deductible.
Over the next few weeks, we will be discussing many of those ordinary expenses that you may be able to deduct on your tax return. Since many categories have rules and limitations, for information specific to your situation, contact your tax professional or www.irs.gov.
This week, we will discuss Above-the-Line Deductions – those expenses deductible from gross income to arrive at adjusted gross income.
If you are an eligible educator and you purchased supplies for your classroom that weren’t reimbursed, you can deduct those expenses, up to $250.
Health Savings Accounts
If you have a high-deductible health plan and you make contributions to a health savings account, those contributions are deductible: up to $3,300 for individuals and $6,550 for families. If you are over age 55, you can make an additional deductible contribution of $1,000. Form 8889 must be completed and attached to your tax return.
If you need to move because of a change in your principal place of work, you can deduct the cost of moving your household goods and also your travel costs, but you cannot deduct your meals. Of course, if your employer pays for your move, you can only deduct those expenses not reimbursed by your employer. Form 3903 must be completed and attached to your tax return.
If you are self-employed and pay for your own health insurance, you can deduct your out of pocket cost for your health insurance.
Contributions to Retirement Plans
In general, if you are not covered by a retirement plan at your employment, any contributions you make to your IRA are deductible, up to $5,500 per year. If you are over age 50, you can contribute (and deduct) an additional $1,000 per year.
If you pay alimony to your former spouse, the amount paid is deductible. Child support payments are not deductible.
Student Loan Interest
Any interest you pay on your student loans is deductible.
Tuition and Fees
If you pay qualified education expenses for yourself, your spouse, or your dependent, you can deduct those expenses, up to $4,000. Form 8917 must be completed and attached to your tax return.
Remember to keep good records of your expenses so you have the information available when it is time to complete your tax return. See you next week for part two of Tax-Deductible Expenses.Judith Ackland has more than 26 years of experience in accountancy and financial planning, including seventeen years as a CFO of a diverse business. She started Crystal Financial in 2010 to help a wide array of individuals, families, and business owners better understand their finances and how good financial management could help them achieve their goals. Judith has an MA in Professional Accountancy from the University of Nebraska at Lincoln as well as a Certified Public Accountant Certificate and a Certified Financial Planner designation.