Personal Tax Tips - Deductions
Updated: Jan 22
Personal Tax Tips from Paragon Tax & Bookkeeping Services
Tax laws have changed in recent years and can be quite complex if you have not been following along. One major thin gon everyone's mind is- deductions! Here are some tips to help you with your Personal Income Tax Deductions and IRS Resolution inquiries. Check back for new tips and please give us a call if you have any questions or are ready to begin your tax preparation.
Medical Expenses There is a level of medical expenses required in order to use these expenses as a tax deduction. Very few taxpayers actually reach this level in order to consider medical deductions. Currently, Total medical expenses must exceed 10% of your adjusted gross income, or 7.5% for those age 65 or older, before you are eligible for a deduction. This includes all applicable medical expenses, including: doctor visits, hospital visits, dentists, eye care, prescription drugs, and required medical devices. If you do not have health insurance through your employer and pay for it out of your pocket, the premiums paid may also be added to your potential deduction. Please ask a tax professional if you are unsure whether an item qualifies.
Self-Employed Health Insurance
If you are self-employed or receive wages from an S-corporation, in which you own at least 2% of ownership shares, you may qualify to take the self-employed health insurance deduction. This can include health insurance, long-term care insurance, supplemental coverage and prescription drug insurance.
Charitable Donations If you are over the age of 70 and are required to take minimum distributions from IRA or other retirement accounts in excess of what you need, you may consider making a Qualified Charitable Distribution (QCD). A QCD can be made directly from your IRA account to the charity organization, which means it is not considered income. This can be a great strategy to reduce income on your tax return and help a noble cause in the process. This does require the charity to have 501(c)(3) status.
Retirement One of the most powerful tax strategies out there is a qualified retirement plan. Within limits, contributions to this plan are immediately tax deductible. Plan investment earnings are also tax deferred and plan participants do not have to pay income taxes on benefits until they actually receive the distribution. This is an excellent option for higher income earners to save as much money as possible on their taxes.
Itemizing Deductions Every Other Year
For those on the borderline between taking the standard deduction or itemizing deductions, planning to itemize every other year can be a worthwhile strategy. In the itemizing year, if property taxes are not escrowed with a mortgage payment, the property taxes on principle residence can be pre-paid for the following year, so that double the tax is paid during the itemizing year and no property tax is paid during the "off year". In addition, charitable contributions can be doubled up in the itemizing years and omitted during the non-itemizing years.
Please do not hesitate to give us a call with any questions you may have. We are here for your best interest and will devise a tax strategy right for YOU. Check back for new tips and please give us a call if you have any questions or are ready to begin your tax preparation.