Tax credits and deductions can mean more money in a taxpayer’s pocket. Most people only think about this when they file their tax return. However, thinking about it now can help make filing easier next year.

Taxpayers should be prepared to claim tax credits and deductions. So, here are a few facts about credits and deductions that can help a taxpayer with their year-round tax planning:

  • Taxable income is what’s left over after someone subtracts any eligible deductions from their adjusted gross income. This includes the standard deduction. In fact, most individual taxpayers take the standard deduction. On the other hand, some taxpayers may choose to itemize their deductions because it could lower their AGI even more.
  • The Tax Cuts and Jobs Act made changes to itemized deductions. Many individuals who formerly itemized may find it more beneficial to take the standard deduction.
  • As a general rule, if a taxpayer’s itemized deductions are larger than their standard deduction, they should itemize. Also, in some cases, taxpayers may even be required to itemize.
  • Taxpayers can use the Interactive Tax Assistant to see what expenses they may be able to itemize.
  • Taxpayers can subtract tax credits from the total amount of tax they owe. To claim a credit, taxpayers should keep records that show their eligibility for it.
  • Here are a few examples of taxpayers who can benefit from certain credits:

Properly claiming these tax credits can reduce taxes owed and boost refunds. Taxpayers can check now see if they qualify to claim it next year on their tax return. Some tax credits, like the EITC, are even refundable, which means a taxpayer can get money refunded to them even if they don’t owe any taxes.

Example: Car Expenses

Taxpayers who have deducted the business use of their car on past tax returns should review whether or not they can still claim this deduction. Some taxpayers can. Some cannot.

Here’s a breakdown of which taxpayers can claim this deduction when they file their tax returns.

Business owners and self-employed individuals
Individuals who own a business or are self-employed and use their vehicle for business may deduct car expenses on their tax return. If a taxpayer uses the car for both business and personal purposes, the expenses must be split. The deduction is based on the portion of mileage used for business.

There are two methods for figuring car expenses:

  1. Using actual expenses
  • These include:
    • Depreciation
    • Lease payments
    • Gas and oil
    • Tires
    • Repairs and tune-ups
    • Insurance
    • Registration fees
  1. Using the standard mileage rate
  • Taxpayers who want to use the standard mileage rate for a car they own must choose to use this method in the first year the car is available for use in their business.
  • Taxpayers who want to use the standard mileage rate for a car they lease must use it for the entire lease period.
  • The standard mileage rate for 2018 is 54.5 cents per mile. For 2019, it‘s 58 cents.
  • There are recordkeeping requirements for both methods.

Employees
Employees who use their car for work can no longer take an employee business expense deduction as part of their miscellaneous itemized deductions reported on Schedule A.  Employees can’t deduct this cost even if their employer doesn’t reimburse the employee for using their own car. This is for tax years after December 2017. The Tax Cuts and Jobs Act suspended miscellaneous itemized deductions subject to the 2% floor.

However, certain taxpayers may still deduct unreimbursed employee travel expenses, this includes Armed Forces reservists, qualified performing artists, and fee-basis state or local government officials.