The end of the year is just weeks away, but you still have time to make these tax-savvy moves to lower your upcoming tax bill.
Consider Paying 2019 Bills Now In the past, many taxpayers paid their mortgage and state taxes due in January before Dec. 31 so they didn’t have to wait another year to take the deduction. But prepaying deductible expenses only makes sense if you itemize, and there’s a good chance you won’t have to go through that rigmarole when you file your 2018 tax return. The new federal tax law nearly doubles the standard deduction to $12,000 for single taxpayers and $24,000 for married couples who file jointly. As a result, only about 13 percent of taxpayers are expected to itemize on their 2018 return, down from nearly one-third in 2017, according to the Joint Committee on Taxation.
Still, if you itemized in the past, it’s worth sitting down with a tax professional or firing up a tax software program. If you’re close to the threshold for itemizing deductions, prepaying your mortgage and increasing your charitable contributions could provide you with enough deductions to itemize and lower your tax bill, says Gil Charney, a director at H&R Block’s Tax Institute.
This is also a good time to review your medical bills for the year. For 2018, you can deduct unreimbursed medical expenses that exceed 7.5 percent of your adjusted gross income. If you’re close to the limit, consider scheduling a visit to the dentist or eye doctor before year-end. In 2019, your medical expenses will have to exceed 10 percent of your AGI before you can deduct them.
Prepay College Expenses If you have a student in college, consider paying the tuition bill for the first quarter of 2019 by New Year’s Eve, so you can take full advantage of the American Opportunity tax credit on your 2018 tax return. This credit, which you can claim for students who are in their first four years of undergraduate study, is worth up to $2,500 for each qualifying student. You don’t have to itemize to claim the credit, which gives you a dollar-for-dollar reduction in your tax bill. A full or partial credit is available to single filers with modified adjusted gross income of up to $90,000 and married joint filers with MAGI of up to $180,000.
Contribute to a College-Savings Plan Contributions to a 529 college-savings plan won’t reduce your federal taxes, but they could provide a state tax break. More than 30 states offer a state income tax deduction for 529 plan contributions. In most states, you must contribute to your own state’s plan to get the tax break, but seven states allow you to deduct contributions to any state’s plan. Check out your own state’s rules at www.savingforcollege.com. Many states allow grandparents and others to contribute to your child’s plan, and a few will allow them to deduct their contributions too.
(Sandra Block is a senior editor at Kiplinger’s Personal Finance magazine. Send your questions and comments to firstname.lastname@example.org. And for more on this and similar money topics, visit Kiplinger.com.)
(c) 2018 Kiplinger’s Personal Finance; Distributed by Tribune Content Agency, LLC.
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