Don’t Overlook These Tax Breaks

Don’t Overlook These Tax Breaks

Monday, 25 February 2019 08:43

The full effects of The Tax Cuts and Jobs Act (TCJA) passed in December 2017 are being felt. There are so many tax changes (have you seen the new forms?), it could be years before all the changes are fully understood. If you haven’t figured it out yet, you may need to adjust your withholding, especially if your “refund” turned into a balance due.

All the news isn’t bad though, in fact, most Americans will pay less tax on the same income in 2018. The law included dozens of tax incentives for middle-class families, so make sure you take advantage of every one you can.

There are still incentives in the tax law to save for retirement. If you have earned income, you can contribute to a traditional IRA. The limit for 2018 is still $5,500 if you’re under 50, $6,500 if you’re 50 or older, if your earned income is greater than the limit. If you’re covered by a retirement plan at work, your deductible contribution can be limited depending on your income. Also, if you’re a spouse with little or no income, but your spouse has earned income, you can make an IRA contribution using your spouse’s income to qualify. And don’t forget, you can contribute until April 15, 2019 and still deduct it on your 2018 return.

If your adjusted gross income is less than $31,500 for single and $63,000 for married taxpayers, there is an additional incentive to contribute to a retirement account. The Saver’s Tax Credit is a credit of up to 50% of your contribution, in addition to the deduction, so it’s even more incentive to save.

The Earned Income Tax Credit is still available for working folks. The credit, which ranges from $519 to $6,431 depending on your income and the number of children you have, is available and if your credit exceeds your tax owed, you will get the excess as a refund. It’s a great credit for low-income households but you have to file to claim it.

The Child Tax Credit has been expanded. The credit, available for low and middle-income households, has been doubled to $2,000 per child and is available every year until your dependent son or daughter turns 17. Even when they turn 17 the credit doesn’t necessarily go away. Now there is a new credit, called the Credit For Other Dependents, that gives you a $500 credit for someone that doesn’t qualify for the Child Tax Credit but is still your dependent, such as a child at college or an elderly parent.

Additionally, there is still a Child Care Credit for eligible expenses for children under age 13. The credit is between 20% and 35% of expenses depending on your income and covers up to $3,000 in child care expenses for one child or $6,000 for two or more children.

The credits for higher education are still available. The American Opportunity Tax Credit (AOTC) provides a credit of up to $2,500 for each of the first four years of a college, and The Lifetime Learning Credit provides up to $2,000 of credit if you don’t qualify for the AOTC.

The last tax break I wanted to mention is zero tax on some Capital Gains. Generally, long-term capital gains and qualified dividends are taxed at a minimum 15% federal rate but if your taxable income is below $38,600 for singles or $77,200 for married taxpayers, some or all of your capital gains and dividends will be taxed at zero percent federal tax. This is a significant benefit to many taxpayers, especially retirees.

My goal this week was really to just remind you that despite the new tax law (and forms), many traditional tax breaks are unchanged or even expanded. Be sure you don’t overlook anything that will lower your tax bill.

If you have an idea for a future article, or just have a topic you would like more information on, please send me an email.

At Faw & Associates, we are always available to answer any of your tax or financial planning questions. We are accepting new clients please contact us for an appointment.At Faw & Associates, we are always available to answer any of your tax or financial planning questions. We are accepting new clients please contact us for an appointment.