Tax Day is still over a month away, but millions of Americans have already filed their federal tax returns. If you haven’t, there are several ways to cut your taxes under the new tax law.
The Tax Cuts and Jobs Act—signed by President Trump last December—not only slashed tax rates across the board, but it also doubled the standard deduction to $12,000 for singles and $24,000 for married couples filing jointly. Moreover, the new law eliminated personal exemptions and changed the itemized deduction process, so filing this year will be much different than last year.
One tax strategy is “bunching,” which especially applies to charitable donations. Under the new tax code, you can still write off your philanthropic giving, but you’ll need to itemize your deductions. Because of the increased standard deduction, fewer and fewer Americans are expected to itemize in coming years.
However, an accountant can help you get over the standard deduction by “bunching” two or three years’ worth of charitable donations into one year. Grouping your donations enables you to itemize and save money.
Another strategy is to pay off your home equity loan. Because of the Tax Cuts and Jobs Act, you can no longer deduct the interest paid on your home equity loan or line of credit if you used the money for purposes other than buying or improving the residence. Therefore, it’s essentially costing you more money to keep the debt on your balance sheet.
Ask yourself one question: How does this debt compare to my higher interest obligations? If you have credit card debt, pay it off first because it often carries a higher interest rate than home loans.
Lastly, get to know your business-related deductions. If you’re an entrepreneur, you may qualify for a 20 percent deduction on qualified business income. You can claim the full tax break—which applies to LLCs and S-corporations—if your taxable income falls below $157,500 as a single filer or $315,000 as a married joint filer.
The bottom line is this: Before you click “Submit” on your tax return, do your research. It could save you thousands of dollars!