How to lower your tax bill? This is a common question I get from long lost friends and family this time each year. We all want to know if there is something we’re overlooking that will redirect some of this tax money back into our pockets.

The US tax reform (TCJA) put in place for years after 2017 removed many deductions for most of us (mortgage interest, charitable contributions, miscellaneous itemized deductions like tax preparation fees and unreimbursed employee expenses). What CAN we still deduct?

Good news!

There are still a few major deductions (and some smaller ones too) available which may lower your tax bill!

Deduction #1 – Traditional IRA contribution

You are eligible to contribute up to $6,000 (or $7,000 if you are at least age 50) into an Individual Retirement Account (“IRA”). If your contribution qualifies for a deduction (check with your accountant on this), it will lower your tax bill.

Of course, you may elect to make this contribution to an after-tax Roth account instead which won’t impact your current tax bill but will provide tax-FREE earnings forever after.

Deduction #2 – HSA contribution

If you were had medica under a qualified high deductible health care plan (HDHP) during 2019, you are eligible to contribute $3,500 as an individual or $7,000 as a family into a Health Savings Account (“HSA”) for that year.

Deduction #3 – SEP-IRA contribution

These tax-deductible retirement savings contributions are for the self-employed with taxable business income and are in addition to the IRA limits mentioned above.

Additional deductions include:

• Side hustle expenses. If you have reportable earnings from a side-hustle such as Uber or Lyft driving, dog sitting or walking, babysitting, blood donation studies (I’ve seen this), or anything else for which you’ve received a 1099-MISC form reporting income, consider whether you may deduct the following:
  • Cell phone – approximate the portion of your bill attributable to your side hustle
  • Internet – if you were working out of your home (as opposed to reporting to someone else’s office), a portion of your internet charges could be deductible
  • Mileage – miles driven for side-work that don’t qualify as commuting may be deductible, so long as you have a detailed log substantiating those miles.
• Indirect rental activity expenses. The same expenses from above should be considered if you have a rental activity.
• Tuition and fees. Up to $4,000 may be deducted subject to income limitations.
• Educator expenses. Up to $250 may be deducted to cover out of pocket expenses paid by teachers and education professionals.
• Student loan interest. Up to $250 may be deducted subject to income limitations.

You have many opportunities to lower your tax bill by taking advantage of these deductions. And keep these deductions in mind as you go about the current tax year and make choices: for instance, going back to school may be more affordable when you consider next year’s tuition deduction.

Do not be afraid to tackle these tax questions yourself – there is ample advice available out there. Google is pretty smart! However, do consider your source when reading about deductions understanding that IRS sources (websites or even tax forms and instructions) are the most credible.

And if in doubt, seek professional help from a CPA or reputable preparer. Beware fast-tax services: you want thorough preparation and competence over speedy results. You will get what you pay for, and that often includes a lower tax bill!

For more information on tax-advantaged savings and other strategies, join us at: buckthebudget.com