1. Reinvested dividends
This isn’t really a tax deduction, but it is a subtraction that can save your clients a lot of money. And it’s one that many taxpayers miss. Many clients have mutual fund dividends automatically invested in extra shares, remember that each reinvestment increases their “tax basis” in the stock or mutual fund. That, in turn, reduces the amount of taxable capital gain (or increases the tax-saving loss) when your client sells their shares.
Not including the reinvested dividends in their cost basis which is subtracted from the proceeds of the sale to determine gains means your client is overpaying on their taxes.
2. Self Employed Clients who Qualify for Medicare
If your client is self-employed and qualifies for Medicare, they can deduct your Medicare Part B and Medicare Part D premiums. This deduction also includes the cost of a supplemental Medicare policy or Medicare Advantage. The best part is your client doesn’t have to itemize to claim this one. However, if they are eligible for coverage under an employer’s health plan this deduction is not available.
3. Out-of-pocket charitable contributions
Don’t overlook the charitable gifts made during the year by check or payroll deductions. The little things add up, too, and your client can write off out-of-pocket costs they incur while doing good deeds such as ingredients for meals they may regularly prepare for a qualified nonprofit organization’s kitchen, for example, or the cost of stamps purchased for a school’s fundraiser. Remember mileage driven in 2019 for charity is a deduction of 14 cents per mile.
4. Student loan interest
In the past, if parents or someone else paid back a student loan incurred by a student, there were no tax breaks. Previously, you had to be both liable for the debt and actually pay it yourself. But now there’s an exception. Your client may know that they might be eligible to take a deduction, but even if someone else pays back the loan, the IRS treats it as though they gave them the money, and they then paid the debt. So, a student who’s not claimed as a dependent can qualify to deduct up to $2,500 of student loan interest paid by them or by someone else.
5. State tax paid last spring
Did your client owe taxes when they filed their 2018 state tax return in 2019? Remember to include that amount with their state tax itemized deduction on their 2019 return, along with state income taxes withheld from their paychecks or paid via quarterly estimated payments. Beginning in 2018, the deduction for state and local taxes is limited to $10,000 per year.
6. Refinancing a Mortgage
When a client refinances a mortgage, they can deduct points over the life of the loan. For example, for a 30-year mortgage, divide the points by 30 and that’s what your client can deduct on their taxes. That means you can deduct 1/30th of the points a year if it’s a 30-year mortgage—that’s $33 a year for each $1,000 of points you paid. Plus, when they sell or pay off the loan, your client can deduct all of the leftover points they hadn’t yet deducted all at once. One exception is if they are refinancing an already refinanced loan with the same lender, in which case the unpaid points on the first refinance get added to the second, then divvied up over the life of the loan.
7. Child and Dependent Care Tax Credit
A tax credit is so much better than a tax deduction—it reduces your tax bill dollar for dollar. So, missing one is even more painful than missing a deduction that simply reduces the amount of income that’s subject to tax.
Don’t let your client overlook the child and dependent care credit. If they pay their childcare bills through a reimbursement account at work. The law allows them to run up to $5,000 of such expenses through a tax-favored reimbursement account at work.
Up to $6,000 in care expenses can qualify for the credit, but the $5,000 from a tax-favored account can’t be used. So, if they run the maximum $5,000 through a plan at work but spend more for work-related childcare, they can claim the credit on up to an extra $1,000. That would cut their tax bill by at least $200 using the minimum 20 percent of the expenses. The credit percentage goes up for lower-income households.
8. Jury pay paid to the employer
Some employers continue to pay employees’ full salary while they are doing their civic duty but ask that employees turn over their jury fees to the company. The only problem is that the IRS demands that individuals report those fees as taxable income. If your client gave the money to their employer, they have a right to deduct the amount, so they aren’t taxed on that money.
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Insurance services offered through Secure Investors Group. Advisory services offered through Secure Asset Management, L.L.C. Tax services offered through Secure Tax Services, L.L.C. Mortgage services offered through Secure Mortgage Funding, L.L.C. The aforementioned companies do not offer legal advice or services.