Every year, millions of people in the United States take the standard tax deduction, while others itemize. The standard deduction is usually the default choice, though, because the tax laws are complicated. A lot of changes also took place in 2018, and that means a lot of taxpayers are unknowingly leaving behind money they could have received. The standard deduction is larger now, and that can make all the difference in tax planning. A recent article in Forbes indicated that 90 percent of tax filers would select the standard deduction for both their 2019 and 2020 taxes. That percentage could even be higher in 2020, when the standard deduction goes up again.
How Do You Decide?
But how can you decide which option will be right for your needs and tax situation? Even with the larger standard deduction, is it possible you're shortchanging yourself? You may be leaving some of your money to Uncle Sam when that's not your intention. A lot of taxpayers do that, because they know itemizing deductions is time-consuming.
By knowing the rules, saving all your receipts, and understanding what is legally deductible, though, you can find out whether the standard deduction or itemized deductions is the right call for you. It takes some time and effort, but a lot of people overlook deductions they could have taken that might have made itemizing well worth it. Too many times, itemizing tax deductions adds up to less than the standard deduction simply because the taxpayer isn't taking all the deductions they're entitled to. Tax avoidance is just taking legal advantage of all the opportunities available -- and it can save you a lot of money.
There Are a Number of Overlooked Tax-Saving Strategies
If taxpayers aren’t aware of the opportunities available, or if they overlook some of the not-so-common strategies, they may think the standard deduction is the best option for them, when that may not be the case.
Here are some of the most common deductions that are overlooked by taxpayers:
· Donor-Advised Funds for charitable giving or a family foundation – you give to charity or a foundation, you can deduct your giving.
· Roth contributions – if you contribute to your Roth IRA, it's not deductible but taking money out in retirement is.
· Home upgrades for alternative sources of energy – you can claim a percentage on items such as those for solar and small wind energy or geo-thermal heat pumps.
· Municipal bonds – buying municipal bonds provide income that can be free of state and federal taxes.
· REITs and MLPs – have favorable tax treatment due to current laws.
· Mortgage refinancing – refinancing your mortgage can bring generous savings and can also help you acquire itemized deductions.
· HSA/FSA contributions – an account that's used to save for healthcare expenses can provide you with tax deduction opportunities.
· Life insurance premiums and contracts – while you can’t deduct premiums you pay on your own policy for yourself, there are tax strategies available when it comes to your life insurance policy.
Itemizing may be more complicated, but it can often yield a better return than the standard deduction. That's especially true when you work with a financial advisor and a CERTIFIED FINANCIAL PLANNER™. Comprehension of tax laws and rules isn't easy for the average taxpayer, and when dealing with itemizing, distributions, penalties, and rollovers it can become very stressful. That's simplified by partnering with a team of professionals that understands all the limitations and liability-reducing possibilities in your particular financial situation.
Ready to see which deduction option is right for you, so you can save the most money on your taxes? Reach out to Central Coast Wealth Management today. At CCWM, they will start a team on your behalf, work directly with your attorney and your CPA, and address your specific family or legal situation. They will even contact the investment companies directly. CCWM will partner with your existing team to make your taxes work for you. Contact them by phone at 805-439-0370, or stop by the office at 1104 Palm Street, San Luis Obispo, CA.
The Financial Professionals of Central Coast Wealth Management are Registered Representatives and Investment Adviser Representatives with/and offer securities and advisory services through Commonwealth Financial Network® Member FINRA/SIPC, a Registered Investment Adviser.