Tax season, the term every year that makes you cringe more than your Dad’s awful dinner jokes. As the dreadful April 15th deadline approaches, all you last minute filers are making final touch-ups on your tax return. You may be thinking? What else can I do to increase my tax return? Or for some, reduce that ugly tax payment…my self-employed peeps know what I mean.
I’ve listed a crash course, quick guide, short list, or whatever you want to call it on some of 2018’s sneaky tax deductions.
Home Improvements: If you purchased a home recently, there are several things that could be used as a tax credit. As most renovations for the home are not deductible, some medical expenses are. Installing non-aesthetic improvements to your home for medical aid such as wheelchair ramps, chair lifts or modified cabinetry (for wheelchair heights) can be used as a deduction. The key is of course for actual medical use and not for visual appeal, then again, most people don’t find low cabinets “trendy”.
Another way to finagle those improvements is in the beginning of your home buying journey (sorry if you already purchased). Since mortgage interest is tax deductible, some loan programs offer renovation credits built into your home price. You see this often in older or distressed homes that need additional work for inspections qualifications or in investment packages. Since those renovation credits accrue mortgage interest, you can therefore use said interest as a deduction.
Energy Credit: Tax credits for energy-efficient upgrades have been extended through 2021, so if you’re looking to make your house as green as the Incredible Hulk, you may want to take advantage, especially since credits reduce in value each year. Up to 30% of the total costs of your energy improvements can be claimed. These improvements include solar panels, solar-water heaters, fuel cells, heat pumps and wind turbines.
What’s the catch?
The credit needs to be for your primary or secondary residence and is considered non-refundable, meaning if your tax owed is reduced to zero, any excess credit is not given back as a refund.
However, any excess credit may be rolled over into the following year’s return to further bring down your tax liability. In this case, it may be beneficial to stash those credits for the next year if you’re anticipating higher owed taxes.
You can file this credit on IRS form 5695
Medical Expenses: Had a booboo or two last year? The IRS allows for the deduction of many expenses such as surgical procedures (except cosmetic), vision, prescriptions, birth control and psychiatric visits. The rule for this takes a bit of calculation. The deduction you receive is the excess of 7.5% of your taxable income. It would look something like this:
$50,000 income X 0.075 = $3,750
$10,000 medical expenses – $3,750 = $6,250 excess to deduct.
Lastly, since these are itemized, you must itemize all your deductions, and not use the standard flat amount deduction.
Education & Tuition Credits: This section is long-winded because there are several, so, I’ll paraphrase. There are three main deductions/credits: The American Opportunity Credit, The Lifetime Learning Credit and Student Loan Interest.
Military Moving Expenses: Long gone are the days, when you could deduct your moving expenses if you had to move for your first job. As of this year through 2025, all expenses pertaining to moving to your first job can no longer be deducted as items on your taxes, unless you’re the military .... sad face. Great news for military personnel, and rightfully so. Moving must be from one active permanent post to another, or to another home in the U.S. within one year of ending active duty. The expenses you can write off are: gas, tolls, lodging, and personal/household goods transit expenses. You can also use the flat method of $0.18 per mile instead.
Hopefully you can capitalize on a few more breaks on your 2018 tax return. Keep in mind, I’m not a licensed CPA and all information and further specifics should be verified through your local tax professional or IRS representative.
Please note that new legislation is passed many times during the year, either eliminating potential credits outlined in this blog or modifying them, so keep an eye out.
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Article written by Brad Means, CMO, SUNDER App Payments.
Andrey Ilkanych CEO, Business, Finance, Psychology.