As I work my way through a stack of tax returns for clients, I thought that it might be helpful to share with you some commonly overlooked items.  Some will save you money and one will keep you from getting a nasty letter in the mail from the IRS:

Itemized Deductions:

Whether single or married filing jointly, many folks opt for the standard deduction now versus itemized simply because they don’t think they will hurdle the standard deduction amount.  However, if your itemized deductions are within a few thousand of standard, run your tax calc using both just to see.  Even if you are a little below the “standard deduction” threshhold ($27,700 in 2023) with your Schedule A itemized deductions, it may save you more on State tax (GA) than it costs in increased Federal tax if you opt for Itemized.  Why you ask?

The state of Georgia in particular has a lower “standard” deduction amount than what you get for Federal.  So if you don’t itemize you basically only get a very low standard deduction of $7100 for Joint and $5400 single.  As an example let’s say you are Married Filing Jointly and earn $200,000.  For state your taxable income would be based on $200,000 – $7100 = $192,900 if you claimed standard deduction, even though your Federal taxable income was based on $200,000 – $27,700 = $172,300.  Flip that around and let’s say you had $26,000 in itemized deductions that you could force in your tax software and then had a state taxable income of $200,000 – $26,000 = $174,000 and you just lowered your state tax bill by over $1000 but only increased your fed tax bill by a few hundred dollars.  That’s free money in your pocket by only having your tax software to calculate both ways.

529 College Savings contributions:

As long as we are talking about state deductions, don’t forget that in GA and many other states (with state income tax) you can get a deduction for 529 college savings contributions.  It doesn’t matter if you are a parent or grandparent.  In GA you get a deduction of up to $8000 in contributions per child.  If you are assuming a 6% state income tax rate that can save you another couple hundred.

Residential Energy Efficient Tax Credits:

This one is also overlooked because the Energy tax credit for homes seems to come and go, but it’s back on.  If you made any energy efficient improvements to your house in 2023 (windows, doors, insulation, new HVAC) then you are eligible for a tax credit.  The credit has a limit depending on category of less than $1000, but hey that is still a dollar for dollar tax credit, not just a deduction so take advantage of it.

Child Care Tax Credits:

Do you have two kids in daycare, but only one bill from the provider?  Make sure to split the bill and allocate half to each kid for calculation of the child care tax credit.  If you don’t, you may only end up with 1/2 your eligible tax credit. This one phases down fairly quickly based on household income, but you can still get something for it (even you high earners).

And lastly…… did you take money out of a 529 to pay for your kids college?

This is so often overlooked, but you have to offset any 529 withdrawals with corresponding education expenses on your tax return.  If you take money from a 529 plan, they send a 1099Q to you and to the IRS computers.  If you forget to show on your tax return that you incurred education expenses to offset that withdrawal from the 529, well you get a nice little letter from the IRS that you owe tax on that.  It’s all computerized at the IRS and those letters are sent out over a year after the fact, but it is a real nightmare to try and get it corrected years later.

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James A. Daniel

James A. Daniel - Financial Planner


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