Tax-deductible contributions to 401(k)s, IRAs and other retirement accounts are among the few remaining ways to reduce taxable income if you don’t itemize deductions. And few of us do these days: Only about 1 in 10 taxpayers is expected to itemize now that Congress has nearly doubled the standard deduction, tax experts say. That’s down from about 1 in 3 before the law changed.
FEWER WAYS TO TRIM TAX BILLS
As a result, many of the traditional tips and tricks for reducing tax bills either no longer work or are of limited help. Deductions for mortgage interest, charitable contributions and medical expenses, for example, can be taken only if you itemize. In addition to increasing standard deductions, the tax law enacted in December 2017 also did away with personal exemptions and curbed or eliminated many other common deductions:
— Unreimbursed work expenses, tax prep fees and job search costs are no longer deductible.
— Moving expenses aren’t deductible unless you’re active-duty military.
— Casualty and theft losses are deductible only in a federally declared disaster area.
— State and local tax deductions are capped at $10,000.
— Home equity loan interest is deductible only if the money was used to substantially improve your home.
Student loan interest is still deductible if you don’t itemize, as are certain self-employment expenses.
You can reduce taxable income by contributing to workplace flexible spending accounts and the health savings accounts that are paired with high-deductible health insurance plans.
RETIREMENT PLAN CONTRIBUTIONS OFFER MULTIPLE BENEFITS
Not everyone can take advantage of those deductions, but the vast majority of working people can contribute to retirement plans, says Michael Eisenberg, a CPA personal finance specialist with the AICPA’s National CPA Financial Literacy Commission.
If you don’t have a workplace plan such as a 401(k), you can make tax-deductible contributions to an IRA as long as you’re under 70½ and have earned income, typically from salary, wages or self-employment income, that’s at least equal to your contribution. People can put up to $6,000 into an IRA in 2019, or $7,000 if they’re 50 or older. (If you or your spouse has a workplace plan, you can still CONTRIBUTE to an IRA, but how much you can DEDUCT depends on your income. Check the IRS site for details.)
Contribution limits are higher for workplace plans such as 401(k)s: $19,000 for 2019, or $25,000 if you’re 50 or older. If you have a workplace plan, your company also likely offers matching funds, says Jarod Taylor, a financial counselor in Westerville, Ohio.
“Let’s say you put in 4% (of your pay), and your employer matches that up to 4%,” Taylor says. “You just gave yourself a 4% bonus.”
Lower-income taxpayers may receive an additional benefit: a tax credit of up to $2,000 for single people or $4,000 for married couples filing jointly that can further reduce the cost of contributions. Tax credits are even more valuable than deductions, and it’s rare to get both at the same time.
Credits of 50%, 20% or 10% of retirement contributions are available for singles with adjusted gross income up to $32,000 or $64,000 f or a married couple filing jointly.
HOW TO FIND THE MONEY
For many people, tax refunds aren’t “extra” money. Every dollar may be needed to catch up on overdue bills or pay for health care.
If that’s not the case, though, you could put a chunk of this year’s refund into a retirement account. You can do that directly, by opening or contributing to an IRA. Or you can boost your 401(k) contribution and use the refund to help replace money deducted from your paycheck.
If you don’t mind a smaller refund and just want to pay less taxes, another possibility is reducing your withholding and channeling the additional money into your retirement fund, Taylor says. Taylor also advises clients to look for small expenses to trim, such as negotiating a cheaper cable package and avoiding bank fees.
“You’ve already been living without that money, so just funnel that off to saving for retirement,” Taylor says.
Even small amounts can add up. As traditional pensions become rarer, it’s important for most people to save if they want a comfortable retirement.
“You don’t want to work for many, many years and wind up, if you can help it, living on Social Security alone,” Eisenberg says.
___
This column was provided to The Associated Press by the personal finance website NerdWallet. Liz Weston is a columnist at NerdWallet, a certified financial planner and author of “Your Credit Score.” Email: lweston@nerdwallet.com. Twitter: @lizweston.
Longtime political leader Ward 2 DC City Council member Jack Evans has a challenger for his job in 2020. His former 2016 reelection campaign co-chair Patrick Kennedy.
A new app has been created to track every kind of hate crime in the U.S.. The app is called Hate Incident Reporting System and it was created by the University of Utah. The creators are hoping to document reports that never make it to the Federal Bureau of Investigation. From slurs written on a bathroom wall to acts of violence.
Today we talked to Jerron Hawkins a graduating senior at Howard University, Obama White House mentee and the founder of Reach Foundation, Inc. The Washington, DC native who is on a mission to disrupt negative cycles and establish a productive and uplifting culture for collegiate minorities. He accomplishes this by providing scholarships, facilitating mentorship, and highlighting the impact that minority college students have on college campuses and in communities around the world through Reach.
The FBI is now looking into suspicious fires at 3 historically black churches in St. Landry, Louisiana. The incidents happened on March 26 and 27th. A fourth church fire was reported in Caddo Parish. It was a small fire. Caddo Parish is about three hours North of St. Landry Parish. The most recent fire in St. Landry Parish was on Thursday. The burning of Mount Pleasant Baptist Church in Opelousas. Thus far no one has been hurt but the churches are destroyed.
Starting today DC Superior Court jurors who have to serve for more than a day will be given a pay raise. The daily pay is going from $10 to $40. In addition, to that court officials also decided to increase travel subsidies from $4 a day to $5 a day.
Prince George’s County Police were called to a home in the 13000 block of Buchanan Drive at 10:30 on Sunday in response to a shooting. Once there they found an 18-year-old female who had been fatally wounded in the Fort Washington home.
There was another bad crash on a local roadway that has snarled traffic for miles. This one, however, was deadly. Two people have died and three others remain in the hospital. The victims are listed in critical or serious condition.
DC Police were called to a double shooting in 49-hundred block of Nash Street in Northeast. Investigators say the adult males were shot multiple time last night near the Deanwood Recreation Center.
Maryland lawmakers have approved a bill that could soon allow minor to get a pill to prevent HIV. The measure allows people under the age of 18 to get the prescription known and P-R-E-P without their parent’s consent. the medication reportedly is preemptive in stopping one from contracting the HIV virus. The bill moves to Governor Larry Hogan’s desk. If he signs off on the legislation Maryland will become the 17 states to pass a similar law.
A grandmother and her thirteen-year-old granddaughter are dead after a massive townhouse fire in Chesapeake Bay, Maryland. The identities of the victims have not been released.
Lawmakers in Maryland voted yesterday in favor of changing the legal age that a person can buy tobacco from 18 to 21. The change includes e-cigarettes and vaping products. It also follows a new study showing a spike in the number of teens using e-cigarettes.
Contributed by Nia Seaton
DC City Officials and AAA Mid Atlantic are teaming up today to kick off a campaign about distracted driving. It is in conjunction with April being National Distracted Driving Month.
There is a new tool in the fight against Opioid deaths in the District of Columbia. Today, DC Mayor Muriel Bower will announce that DC Police Officers and members of the Narcotics and Special Investigation Divisions will have the life-saving Naloxone with them. The medicine will be stored on the outside of their vest.
