Tax Credits & Deductions

You can save money by taking advantage of every tax credit and deduction available to you. Credits provide a dollar-fordollar reduction of your income tax liability; that is, a $1,000 tax credit actually saves you $1,000 in taxes. Deductions, on the other hand, lower your taxable income. For example, if you are in the 22% tax bracket, a $1,000 deduction saves you $220 in tax, which is $780 less than the savings with a $1,000 tax credit. Let’s take a look at some valuable credits and deductions.

Itemized Deductions

Because tax rates, deductions, and phaseouts are constantly changing, timing of income and expenses is critical. For most taxpayers, the general rule is defer income and accelerate deductions. You are allowed to take the standard deduction or to itemize your deductions on your tax return—whichever offers you the most benefit. However, the Tax Cuts and Jobs Act of 2017 eliminated or restricted many itemized deductions starting in 2018, and raised the standard deduction. This means that fewer taxpayers are likely to itemize.

The standard deductions for 2020 are as follows: $24,800 for married taxpayers filing jointly; $12,400 for single filers; $18,650 for head of household filers; and $12,400 for married taxpayers filing separately. There is an additional deduction for visually impaired or elderly taxpayers of $1,650 (if unmarried and not a surviving spouse) or $1,300 (if married).

If you still itemize your deductions, maintain detailed records. Consult with us throughout the year to monitor your income and plan your deductions.

Some itemized deductions—such as medical expenses—are based on “floor” amounts. Only amounts that exceed the given floor can be deducted.

Try "bunching" your expenses to make sure you exceed the deduction "floor." Bunching two year's worth of expenses into one year enables you to increase your total deductions over the two-year period and avoid losing the tax benefit from your deductions.

Pease Limitation

The Tax Cuts and Jobs Act of 2017 suspended the Pease limit on itemized deductions for tax years beginning after December 31, 2017 and before January 1, 2026.