IRS - The Finance Gourmet

How To Deduct Property Taxes

When it’s tax season, everyone’s thoughts turn to tax deductions. Financial advisors and accountants alike are flooded with calls from frantic clients looking to save money on taxes by finding new deductions or other tax tricks. The most common question by far is, “Is this Deductible?” Remember, this tax season is tricky. The new tax law passed at the end of 2017, applies to the taxes you will file in 2018, not the ones you are filing right now.

Unfortunately, many tax deductions are either too small to have very much impact on how much taxes you pay, or are too narrowly tailored to actually be a tax deduction that most people can take. Add into the mix the fact that many of the things that people “just know” are tax deductible, actually are not tax deductions until they are higher than a certain “floor”, and most searches for new tax deductible items end in disappointment.

The good news is that some big items are deductible for almost everyone. These are the best tax deductions out there and they are good for high-income taxpayers and lower-income taxpayers alike. These include deducting mortgage interest, many educational expenses, and tax deductions for children, and the related child tax credit. One of the other biggies that can bring tax burden relief is deductible property taxes.

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Deducting Property Taxes on Income Tax Forms

Many people are surprised to find out how much property taxes they pay on real estate, particularly on their primary residence. This is because a large percentage of home owners pay their property taxes via their mortgage loan.

That is, that the mortgage company collects an extra amount of money with each payment which it keeps in an escrow account. Over the year, that extra money adds up to enough cash to cover the amount of property taxes due. If it the escrow account comes up short, the mortgage company fronts the money and then increases the part of the monthly loan payment for escrow.

Even though the mortgage company handles paying the property taxes for you, it does so with your money, which means you are the still the one who paid the property taxes, and therefore, you are the one who gets the property tax deduction. Check the 1099-INT tax form the mortgage company is required to send you each year. Both the amount of mortgage interest paid for the year and the amount of property taxes paid annually should be listed. Enter the amount of interest you can deduct on Line 6 of Schedule A Form 1040 from the IRS.

Deducting property taxes graphic — Use Schedule A to deduct property taxes paid on your home.

Don’t forget about other property taxes too! The most common type of property taxes that are deductible, other than real estate property taxes, are the property taxes on cars. Automobile property taxes are deductible if they are computed based upon a percentage of the car’s value. In other words, the taxes that are levied by the state, county, or city that are a variable amount depending on how much the car is worth are deductible. Flat taxes and fees, such as a $25 annual fee, that are the same amount no matter what the car is worth are not deductible.

Keep an eye on the mail for all tax forms, including 1099 Forms for real estate and brokerage and banking accounts. There are important tax numbers on each of these.

Tax Filing Day 2018 Taxes Due

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If you can’t get your taxes filed on April 15, 2018, don’t worry!

This year, April 15th falls on a Sunday. Normally, that would move tax day to Monday April 16th. However, Washington D.C. celebrates a legal holiday called Emancipation Day on April 16th, so tax due day is now April 17th.

So, get going!

Last, Last, Last Minute Tax Savings?

What’s that?

You are searching for a last minute tax savings strategy? Who isn’t?

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Unfortunately, there aren’t really many options now. The one big exception is making a contribution to your IRA, assuming your IRA is deductible based upon your income and retirement plan availability. If you have an online account linked to a checking account, or something, that is the easiest way to make your contribution happen. Just log in and setup a deposit into your IRA account. Your brokerage will ask if you want it to count as a 2017 contribution, or a 2018 contribution.

Don’t forget to go back into TurboTax, TaxCut, or what the HR Block tax software is (I’m not going to bother looking it up ) and input the contribution. IRA contribution deductions are not automatic, so you have to put it into your tax forms.

If you are worrying about some sort of tax form or “proof” that you made the contribution, don’t worry. Those forms are called Form 5498. Those tax forms are sent by your IRA custodian (the company that holds your IRA account) directly to the IRS. You will also get a copy, but you don’t have to do anything with it. These forms are not due to be sent out until May 31, partly in order to accommodate last minute IRA contributions.

In other words, you make the contribution, and put it on your tax form, and don’t worry about the proof, your IRA company will take care of that for you. (Don’t try and fake the contribution though, because if the IRS doesn’t get a matching amount to what you put on your tax return on all of your Form 5498s, a computer is going to flag that for review.)

After that, get your taxes, or payment in a mailbox by midnight tonight. Be sure to check the Post Office website to see which, if any, post offices will be making after hours postmarks on mailed returns. Not all of them do. Don’t be a late filer based on a wrong guess about which Post Office you use to mail your return or payment.

IRS Filing Extension

If you can’t file your taxes by April 17, then it’s still no big deal. You can get a free, automatic, no questions asked extension for 6 months from the IRS by filling out Form 4868. There is a catch. If you OWE money, it is still due on April 17th. Any amount not paid by April 17th is subject to interest. So, if you are sure you are getting a refund, just send in your extension form and don’t worry about it.

If you are not getting a refund, then make your best guess and send the IRS a check. If you overpay, you’ll get refund when you did file your final tax return. If you underpay, you’ll still owe interest, but only on the amount you didn’t pay. For example, if you end up on your final income tax return 1040 owing $1,482 but you only sent the IRS $1,300 on April 17th, then you only owe interest on the $182 you didn’t pay, which will be a smaller amount than interest on the whole thing.

Don’t forget, tax time is a good time to pull one of your free credit reports, or take a look at a free credit score at Credit Karma, or something like that.

Good luck, and may the deductions be ever in your favor.

IRS Standard Mileage Rate 2018

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Higher gas prices have one silver lining: a higher IRS mileage deduction standard rate.

Every year, the IRS updates the standard amount one can deduct for each mile driven for business or miles driven for charitable purposes. The amount of the IRS standard mileage rates deduction is based upon various different factors, but the price of gasoline figures most prominently into the change each year. (Things like depreciation, and wear and tear, are included, but don’t vary much from year to year.)

2018 Standard IRS Mileage Reimbursement Rate

Rising gas prices means that the standard mileage rate deduction for 2018 is higher, and since many companies use the same IRS number as their mileage rate allowance, a lot of those will be higher too.

The IRS rate per mile for business miles driven is 54.5 cents per mile, up from 53.5 cents per mile in 2017.

The IRS standard mileage rate for medical purpose, or for miles driven while moving is 18 cents per mile, which is also up a penny per mile from the 2017 mileage rate.

The mileage deduction rate for miles driven for charity is 14 cents per mile, which is the same as 2017.

Standard Mileage Rate Amount Tax Deduction

Remember, you may only deduct miles driven for business purposes that are not reimbursed by your employer. Although your employer is not required to use the IRS standard deduction per mile, most companies do for easier compliance. Also, remember that miles you drive commuting back and forth from your job are not tax deductible at all. However, if you are a 1099 employee (contract, non-W2 employee) you may be eligible to deduct such mileage as a business expense.

The IRS standard mileage rate for miles driven in service of charitable organizations is 14 cents per mile for 2017 and 2018. Again, if you are reimbursed in anyway, you may not deduct your mileage. However, if you drive in order to do something for a charitable organization, it can be deducted, essentially as a donation to the organization. The standard rules for who does, and does not, count as a charitable organization apply.

Finally, you can deduct 18 cents per mile for mileage driven for medical or moving purposes. The rules for deducting medical expenses and moving expenses apply. So, determine whether you qualify for the deduction first, before worrying about the miles. In both cases, there is a not insignificant minimum floor of expenses required before you are entitled to any deduction, so driving your kids to the pediatrician once per year probably won’t be big enough to get deducted.

How To Deduct Mileage Using the Standard Mileage Deduction Amount

Once you have determined that your driven miles are deductible, you’ll need to keep records of all deductible miles driven. The IRS requires “contemporaneous records,” which means you need to somehow log your mileage deduction miles driven as you drive them. The best practice is to log each trip with a date, purpose, starting point and destination, and starting and ending odometer reading, although that isn’t strictly necessary. Some people keep a little mileage deduction log book in their car. Others use an app on their phone.

Whatever you use, be sure that you can export the data and keep it with your tax papers for the next three years. Don’t make the mistake of assuming you can get back into an app or online log three years from now.

Deducting Miles Driven Without the Standard Mileage Rate

Of course, you do not have to use the standard mileage deduction rate. You may deduct the actual cost of operating your vehicle for business, charity, medical, or moving purposes. However, this requires detailed records, and receipts for things like vehicle maintenance such as oil changes and repairs.

Also, if you deduct the cost of a vehicle using a Section 179 deduction or with the Modified Accelerated Cost Recovery System (MACRS), you may not use the standard mileage deduction amount for 2018, or any year as a deduction.

IRA Contribution Limits 2017

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Not all tax numbers stay the same over time. Many income limits and other tax numbers are adjusted each year, either for inflation, or by another statutory mandate. These tax numbers include the tax tables and tax brackets for each year, for example. The IRS announces the numbers each fall.

This year is a bit confusing because some of the retirement plan tax numbers were increased by cost of living adjustments. However, other numbers remain unchanged from the previous year because the amount of the change was below the amount legally required to change the figures.

2017 IRA Contribution Limits

The 2017 IRA contribution limits were recently published by the IRS. Note that these limits are for contributions made during the 2017 tax year, for use when filing income taxes due by April 2018.

The maximum IRA contribution for 2017 is $5,500. This is the same as the maximum deduction for 2016. The 2017 IRA catch-up contribution amount remains unchanged at $1,000 as well. Only taxpayers over age 50 are permitted to make a catch-up contribution to an IRA account.

Therefore, taxpayers under age 50 may contribute up to $5,500 to their IRA during the 2016 tax year and those over age 50 may contribute up to $6,500. Remember, however, that IRA contributions may be made through April 15th of the following year. In other words, contributions made anytime between January 1, 2017 and April 15, 2018 may be claimed on the 2017 income taxes. This is provided, of course that none of the amount contributed between January and April 15th, was deducted on your 2016 taxes.

Maximum Income for Deductible IRA Contributions 2017

Traditional IRA contributions are tax deductible for taxpayers with incomes below certain thresholds. These income limits are also adjusted each year for inflation. If you, or your spouse, are covered by an eligible retirement plan at work, then for 2017, the maximum adjusted gross income (AGI) for a full IRA contribution deduction is $99,000 for joint filers, and $62,000 for single filers. Taxpayers with high incomes above these amounts will have to calculate the phase-out for their 2017 IRA contributions. Those with incomes higher than $119,000 for married filing jointly, or $72,000 for those filing single, cannot deduct any part of their contribution to a traditional IRA account.

Taxpayers who do not have an eligible retirement plan offered at work, and whose spouse is also not covered by a work retirement plan may take a full deduction for IRA contributions regardless of how much money they earn.

If a taxpayer is not covered by a retirement plan at work, but their spouse IS COVERED, then the income limit for a fully deductible contribution is $186,000 or less. Deductible IRA contributions are phased out in such cases for incomes between $186,000 and $196,000 during 2017.

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