Here are some things to consider that may save you some money when filing your state and federal income taxes:
1. Filing Joint or Separate Returns
Typically it works out better financially for couples to file a joint return because the IRS does give joint filers one of the largest standard deductions. However, there are times when it is better to file separately, and here are the top reasons why you may want to:
- One person has a high amount of losses to claim
- One person has a large amount of out-of-pocket deductible medical expenses
2. Sales Tax Deduction
You now have the option to take a sales tax deduction instead of deducting state and local income taxes. This is due to the PATH Act or Protecting Americans from Tax Hikes Act. Some states don’t charge income tax, so this deduction would be taken instead. However, there are also other reasons you may want to take this deduction and write off sales tax:
- Purchased “big-ticket items” such as a car, boat, motorcycle, motor home, travel trailer, etc.
- Made large home improvement purchases such as windows, roof, etc.
Note that you can write off sales tax based on your actual receipts or use a more convenient state-by-state table. If you opt for the table, you can still add the sales tax paid on certain “big-ticket items,” such as cars and boats.
Whether you are a parent of a child in college, or a college student yourself, there are education credits available that you may be able to take advantage of, including:
- American Opportunity Tax credit
- Lifetime Learning credit
- Deduction for tuition and related fees
- Student loan interest payments
4. Home Office Deductions
Working from home is becoming more popular, so if you work from home, you may qualify for a home office deduction. If you anticipated this and kept detailed records, you may be entitled to both the home office expenses and a portion of the entire home’s expenses which is based on a percentage of business use in the home. However, if you didn’t keep detailed records, you can use a formula equal to $5 per square foot of the home office, up to a maximum of $1,500.
Please contact your tax adviser before using any of the above suggestions. Your tax adviser can help you make the best decision by performing a side-by-side comparison of your options, discuss the pros and cons, and help you make an informed decision. For assistance with your income tax preparation, please contact a qualified accountant at Simply Counted in Holland, MI.