Is tax season stressing you out? Every year, our mid-April tax deadline seems to creep up unexpectedly. This year you might be feeling an extra measure of pressure surrounding your taxes as you question how the new tax law will impact your filing for both this year and next year. To ease your stress, let’s go over a few of the best tax savings strategies for this filing season.
Tip #1: Get organized.
When we get our tax forms, it’s easy to shove them in a drawer with our other mail. Instead, get proactive and organize your tax documents before you file.
Grab a binder, folder, or envelope and store all of your tax forms there. Before you file, make a list of all the forms you currently have and those you may need. It often makes sense to write down the different financial moves you made in 2017 to make sure you have everything you need.
For example, you might need to go back through bank statements to find transaction receipts for classroom supplies. Or you may have forgotten about the donations you made to a school fundraiser or local organization during the year.
Knowing what documents you need and what deductions you need to account for can ensure you save the most money possible on your taxes.
Tip #2: Consider your filing status.
If you’re married, it may be your gut instinct to file as “married, filing jointly.” However, in some cases, you can save money by filing separately from your spouse.
Often, filing jointly puts you and your spouse in a higher tax bracket because your income is lumped together. Filing jointly also can eliminate the ability to use miscellaneous deductions that often come with things like union dues, the cost of having your taxes prepared, and more.
Ultimately, only a tax professional will be able to tell whether filing jointly or separately with your spouse will help you save on taxes. Still, it is something to keep in mind.
Tip #3: Look at your medical expenses.
The recently passed tax law effectively expanded the deduction for medical expenses. Unlike many pieces of the new tax law, this deduction expansion applies to both your 2018 and your 2017 taxes.
In previous years, the deduction only applied to any medical expenses over 10 percent of your AGI (adjusted gross income). However, the new law has lowered that to include any medical expenses over 7.5 percent of your AGI.
It’s important to note that you must itemize to receive this deduction and that after the 2018 tax year the percentage will rise again to 10 percent. In short: If you already itemize your taxes and have a significant amount of medical expenses, you should take advantage of this deduction to save more on your taxes.
Tip #4: Don’t forget your educator expense deduction.
This should go without saying if you’re an educator who spends personal money on classroom or school supplies: Don’t forget your educator expense deduction! There was a lot of talk about this deduction being eliminated with the new tax code. Even if it had been eliminated (it wasn’t), it wouldn’t have affected your 2017 tax year.
To qualify for this deduction, you must have worked a minimum of 900 hours at a school (either elementary or secondary) certified by a state, and you need to have worked as either a teacher, instructor, counselor, principal, or student aide.
This deduction is an above-the-line deduction. You would list it on a Form 1040 when filing your taxes, meaning it doesn’t get lumped together with all the other itemized deductions on your 1040. If you have spent more than $250 on qualifying items, you qualify for a $250 dollar-for-dollar reduction against your income. Any expenses above the $250 limit can be listed as an unreimbursed employee expense on your 1040. Confused? Here’s some more guidance from Intuit TurboTax.
A few qualifying expenses are: books, school and classroom supplies, athletic equipment (for gym teachers or coaches), and any computer equipment or technology that you use in the classroom. Be sure to check out our list of teacher tax credits and deductions.
Ready for next year?
The number one tax savings strategy that you can implement in the 2018 tax year is to lower your taxable income. To do this, you need to find ways to contribute to pre-tax funds so that the total amount of income that the government views as taxable is lower.
Wondering what funds are pre-tax? A few to consider are:
- Your retirement fund (excluding a Roth IRA).
- A Health Savings Account.
- A Flexible Spending Account.
- Any other accounts offered through your employer that deduct pre-tax money from your income (depending on your employer, they may offer spending accounts for childcare, transportation, etc.).
One way you can ensure that you’re maximizing your tax savings this year is to speak with a financial professional. Discussing your options with an accountant or a financial planner can help you get on track and save a lot of money. That way, when tax filing season rolls around next year, you’ll have peace of mind.
We’d love to hear about the tax savings strategies you use in filing your return. Come and share in our WeAreTeachers HELPLINE group on Facebook. WeAreTeachers HELPLINE is a place for teachers to ask and respond to questions on classroom challenges, collaboration and advice.