When tax time rolls around, you’ll want to make sure you get the biggest refund possible—and part of that involves maxing out your deductions. For this blog post, we wanted to talk about three possible deductions you’ll want to talk to your CPA about.
Medical expenses / premiums
For the 2019 tax year, individuals were eligible to deduct any medical expenses that exceeded 7.5% of their adjusted gross income (AGI). This is especially important, because people who file their own tax returns may not fully understand how this works. Your AGI is your total income minus specific adjustments such as IRA contributions (but before itemized deductions.) In some instances, an individual’s AGI can be substantially lower than their total income (gross income). Once you understand your AGI, you’ll be better able to understand whether you can write off certain medical expenses, such as medications, hospitalizations, rehabilitation, and etc. If you have questions about how this work, be sure to address them with your tax professional.
If you’re incurring childcare expenses because you’ve hired a sitter to help you out while you’re at work (or finishing your degree), you might be able to write off your childcare expenses. However, if you want to take the child and dependent care credit, there are a few caveats. First, you need to have paid someone to care for your children, and second, the person you paid cannot also be your defendant (i.e., you can’t write off money you pay to your 16-year-old child for watching your 10-year-old twins.) Lastly, you’ll need to provide the IRS with your sitter’s full name, address, and social security number to access the credit. (Some states also require you provide their phone number.) The rules on this can be a bit complex, so if you want to explore writing off your childcare expenses, ask your CPA to provide you with the most up-to-date information.
Are you self-employed? If so, you can write off a portion of your income tax
Being self-employed is great- however, you’ll need to be prepared to pay a whopping 15.3% of your income toward social security and Medicare taxes. (In contrast, if you work for a company, you and your employer would split the tax– and pay 7.65% each.) The good news is that you can deduct the employer portion (7.65%) from your income taxes.
For more information on how to maximize your deductions, call Hughes, Snell and Co., PA today to schedule a free consultation.