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Your Guide to 2019 Tax Deductions

CLAIMING TAX DEDUCTIONS is a powerful strategy for tax filers. Using appropriate deductions can lower your bill, increase your tax refund or make sure you're taking advantage of tax benefits offered by your federal and state governments.

Want to know how to best use tax deductions? Here's your guide to 2019 tax deductions.

What Is a Tax Deduction?

A tax deduction reduces a filer's taxable income. In other words, a deduction "reduces your income in arriving at taxable income," says Charlene Wehring, certified public accountant and financial advisor with Avantax Wealth Management in Bellville, Texas. "And then you apply your (tax) bracket." That's in contrast to a tax credit, which lowers your tax liability dollar for dollar. Tax deductions typically fall into three main categories:
A tax deduction reduces a filer's taxable income. In other words, a deduction "reduces your income in arriving at taxable income," says Charlene Wehring, certified public accountant and financial advisor with Avantax Wealth Management in Bellville, Texas. "And then you apply your (tax) bracket." That's in contrast to a tax credit, which lowers your tax liability dollar for dollar. Tax deductions typically fall into three main categories:

  • The standard deduction.
  • Itemized deductions.
  • Above-the-line deductions.
A filer must choose between taking the standard deduction or itemizing deductions but can use relevant above-the-line deductions regardless of whether they itemize.

The Standard Deduction

The standard deduction is a set amount of money on which you aren't taxed. It's fixed for each tax year and depends on your filing status, age, spouse's age and whether you or your spouse are blind.

Here are the standard deduction amounts for 2019 income (taxes filed in 2020):

Single $12,200 Add $1,650
Married filing jointly $24,400 Add $1,300
Head of household $18,350 Add $1,650
Married filing separately $12,200 Add $1,300

If you are filing taxes as married filing separately and one spouse itemizes deductions, the other must do so also.

Itemized Deductions

Itemized deductions are qualified expenses subtracted from your adjusted gross income, or AGI, to lower your taxable income. Filers who don't take the standard deduction are typically choosing to itemize deductions because the total of those expenses is greater – and therefore more beneficial – than their eligible standard deduction amount.

These are common itemized deductions to consider in 2019:

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  • Charitable contribution deduction.
  • Home interest deduction.
  • Medical expense deduction.
  • State and local tax deduction.

Charitable contribution deduction. Filers who are charitably inclined may deduct donations given to qualified charitable organizations. Unlike, say, medical expenses, which can be deductible but unpredictable, charitable giving can be a savvy way to plan ahead to reduce your tax liability. "It probably gives you your only chance to do some tax planning," says Craig Richards, director of tax services at Fiduciary Trust Company International in New York City.

One strategy filers can use is to double up their donations in a single tax year, perhaps donating once in January and again in December. This technique, called "bunching," can increase their deductible charitable contributions for a single year, causing them to outspend the standard deduction and make itemizing in that year the right tax move.

Home interest deduction. Taxpayers who itemize may deduct the interest accrued on the purchase, building or substantial improvement of a qualified residence. For debt accrued after Dec. 15, 2017, you can deduct home mortgage interest on your first $750,000 of indebtedness ($375,000 for married filing separately). For qualified home loans taken before that December cutoff, the previous maximum of $1 million ($500,000 if married filing separately) still applies.

Additionally, a loan used to refinance your home can only be deducted if it's used to substantially improve your home.

Medical expense deduction. Qualified health care expenses such as those spent on the diagnosis, treatment or prevention of a disease may be subtracted from your adjusted gross income as itemized deductions. You may only deduct those unreimbursed medical expenses that exceed 10% of your AGI. Unnecessary procedures, such as cosmetic surgery, aren't eligible.

State and local tax deduction. Filers may deduct taxes paid in 2019 up to $10,000 ($5,000 if married filing separately). Those taxes can include state and local personal property taxes, state and local sales tax and other deductible taxes.

Above-the-Line Tax Deductions

Deductions that are taken "above the line" are subtracted to reach your adjusted gross income, or AGI, instead of from your AGI, like itemized deductions. You do not need to itemize your deductions to claim these. They are available if you take the standard deduction.

These are common above-the-line deductions to know for 2019:

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  • Alimony.
  • Educator expenses.
  • Health savings account contributions.
  • IRA contributions.
  • Self-employment deductions.
  • Student loan interest.

Alimony. Recent divorcees cannot deduct alimony paid to reach adjusted gross income, but if you're paying alimony from a divorce finalized prior to Dec. 31, 2018, you can still deduct it.

Educator expenses. Eligible educators can deduct up to $250 ($500 if married filing jointly and both spouses are educators) of unreimbursed expenses related to your job, including books, supplies and computer equipment.

Health savings account contributions. health savings account, or HSA, is a dedicated health care account funded by taxpayers who are enrolled in a qualified high-deductible health insurance plan. Those contributions, which are limited to $3,500 for single filers and $7,000 for families in 2019, are deductible as an above-the-line deduction.

Note: If you fund an HSA through your employer, your contributions may be deducted directly from your paychecks instead.

IRA contributions. Taxpayers who qualify to make deductible traditional IRA contributions, which are subject to limitations based on income and active participation in an employer retirement plan, can deduct up to $6,000 for themselves and $6,000 for a spouse (with a $1,000 catch-up for those 50 and older) as an above-the-line deduction.

Remember that Roth IRA contributions are not deductible.

Self-employment deductions. Self-employed filers may deduct a portion of their self-employment tax, contributions to certain self-employed retirement plans and health insurance premiums, among other deductions.

Student loan interest. Taxpayers who earn below certain "phaseout" amounts may deduct up to $2,500 of student loan interest.

Deductions That Changed or Disappeared Under Trump Tax Reform

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  • The standard deduction.
  • Alimony.
  • Unrestricted casualty losses.
  • Home interest deduction.
  • Moving expenses for non-military taxpayers.
  • Miscellaneous itemized deductions.
  • Unlimited state and local taxes.

The standard deduction. The big story under tax reform was that the standard deduction nearly doubled. For 2019 income, it's $12,200 for single filers ($24,400 if married filing jointly).

Alimony. Those who are paying alimony in divorces finalized in 2019 and beyond will not be able to deduct alimony as an above-the-line deduction, and their ex-spouses will not claim alimony payments as taxable income. Ex-spouses paying or receiving alimony from pre-2019 divorces are grandfathered into the old rules and can still deduct or claim alimony payments.

Unrestricted casualty losses. Previously, deductible casualty losses were available in a range of situations. For 2019, know that you can only claim casualty losses incurred in a federally declared disaster area, such as a locality that experiences an intense storm or flood.

Home interest deduction. Taxpayers in 2019 aren't able to deduct up to $1 million in home loan interest or deduct home equity loans used for personal expenses. This year, your home interest deduction is limited to $750,000 ($375,000 for married filing separately) of indebtedness and can only be deducted if used to purchase, build or substantially improve a home.

Moving expenses for non-military taxpayers. Previously, filers could deduct moving expenses to relocate for a new job. After the Tax Cuts and Jobs Act took effect, this deduction is only available to active-duty military.

Miscellaneous itemized deductions. After tax reform, taxpayers can no longer write off investment management fees, tax preparation fees and other itemized deductions.

Unlimited state and local taxes. The limitation of deductions of state and local taxes to $10,000 is an important change under Tax Reform. Take note, especially if you live in a high-tax state such as California or New York. It could make itemizing considerably less attractive.

How to Maximize Your Deductions

When claiming deductions, don't forget to keep good records. You'll need a paper trail to back up deductions for certain expenses such as charitable deductions topping $250 and medical expenses.

Keep in mind that a deduction not available under federal law may still be available under state law. "Even though the IRS may not let you deduct it, the state could," Wehring says. So review your states deductions or call your tax preparer to ensure you're not tossing documents that could still score you a state tax benefit.

Bunching or doubling up on itemized deductions may be a strategy that works to help you qualify to take itemized deductions in a given year. Wehring recommends looking into bunching charitable contributions and making sure to make property tax payments before the year ends. "Pay in January and pay in December, so you bunch your property taxes to get up to the $10,000, and then bunch the charitable contributions to put you over the top."

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