The tax filing deadline was extended to July 15, 2020 for State and Federal returns due to the Covid-19 pandemic. You should use this time wisely to organize your records, make appointment to file returns. Ensure you are not missing out on any deductions because you forgot to include an expense. Which was purchased with cash or a card which is not linked to your accounting software such as quick books or xero.
I have many clients who use to itemize to save on their taxes, but because the standard deduction has increased. Most of the time it makes more sense to use the standard deduction instead of itemizing their deductions. Using the standard deductions helps my clients to save more on their taxes. Sometimes they are a little disappointed that they cannot claim their mortgage interest, property tax, tithe, mortgage insurance and donations to charity. It is my job to advise them on what they can claim in addition to the standard deduction. There are four deductions I recommend in my tax planning sessions with my clients, they are:
Student Loan Interest- you can claim up to $2,500.00 in student loan interest per return if you were not claimed as a dependent on someone’s else’s tax return and if your filing status is not married filing separately. The income limits for this deduction are single above $70,000.00 in modified adjusted gross income (MAGI) and for married filing jointly it is a MAGI above $149,000.00.
IRA Contributions – there is a tax deduction available for contributions made to your IRA even if you are not itemizing your deductions. The IRA contribution limits for 2020 are $6,000.00 if you are under 50 years old, if you are over 50 years old, you can contribute an additional $1,000.00. If you or your spouse has a retirement plan at your job the deduction can phase out if your income is too high. It is not too late for you to make contributions for 2019 because the filing deadline has been extended to July 15, 2020. Each year you have until the tax filing deadline which is usually April 15 to make contributions for the prior year.
HSA Contributions – there is a deduction available if you are eligible to contribute to a HSA account Individuals who are self employed and have a high deductible health insurance can contribute up to $3,550.00 for individual coverage and $7,100.00 for family coverage for 2020.If you are 50 or older, you can contribute an additional $1,000.00. The HSA deductions has two benefits, it helps you to save on your taxes, you can also deduct the money tax free to pay for qualify medical expenses. It is not too late to make contributions to an HSA account because the filing deadline has changed to July 15, 2020.
Self Employed deductions – there are a lot of deductions available to you when you are self-employed. You can deduct half of your Medicare and Social security taxes which you pay monthly from your paycheck, if you were an employee, your employer would have paid half of your Medicare and Social security taxes, these are your self-employment taxes, you can also deduct your expenses such as your business miles, office expenses, home office deductions, repairs and maintenance, contract labor, business insurance, rent 50% of meals. License, rent, equipment rental, legal and professional fee, supplies, depreciation, mortgage and other interest, legal and professional fee, commission and fees.