Student Loan Interest Deduction

Have you paid down on your student loans this year? If so you may be entitled to a deduction for student loan interest paid. If you paid more than $600 of interest you should have received a 1098-E from the lending institution that will show exactly how much you paid in interest on your student loan(s). If you didn’t get a 1098-E you can still take the deduction you just need to get the amount yourself. The deduction is capped at the greater of what you actually paid or $2,500. To qualify you must have:

• Actually paid interest on your qualifying student loans that you are legally obligated to pay (parents that have co-signed and have paid interest are usually eligible to take the deduction for what they actually paid).

• Had MAGI (Modified Adjusted Gross Income) under $85k for single, head of household, or qualified widow; or under $170k for married filing jointly.

• Not been claimed as a dependent on someone else’s return (a parent’s, etc).

Contact me with any questions - you don’t want to miss out on this great deduction!

Do I Itemize?

How do I know if I should itemize or take the standard deduction? What is the standard deduction?

The standard deduction for 2020 is $12,400 for single or married filing separately; $24,800 for married filing jointly; and $18,650 for heads of households. The standard deduction is used to lower your taxable income. If you made under the standard deduction you would pay no federal income tax. Taking your AGI (Adjusted Gross Income) and subtracting either the standard deduction or your itemized deductions gets you to your taxable income. This is used in calculating how much taxes you should have paid for the year.

Instead of taking the normal standard deduction you are able to take what is called itemized deductions. If the total of all the itemized deductions is greater than the standard (listed above) then you would use that total. If not, then you use the standard deduction amount. The higher the deduction the smaller the taxable income, and the less taxes paid overall (which is the goal after all isn’t it?).

Here is the general list of what to add up for itemizing:

• Home mortgage interest paid (form 1098) and mortgage insurance premiums (PMI)

• Investment interest

• State and local income taxes, real estate taxes, and property taxes (combined number is capped at $10k, or $5k for married filing separately)

• Other taxes

• Charitable donations (NEW FOR 2020 - you can take up to $300 in charitable donations even if you don’t itemize!)

• Theft losses and casualty losses from a federally declared disaster. net of any insurance proceeds.

• Medical expenses greater than 7.5% of your AGI.

Earned income tax credit (EITC)

There is a tax credit called the Earned Income Tax Credit, or the EITC, that is overlooked by millions of Americans each year. Don’t be one of them! A tax credit is even better than a deduction because it lowers how much you owe in taxes dollar for dollar rather than a deduction which just lowers your taxable income. To qualify for the EITC you must:

• Have earned income during the tax year (as opposed to only passive income like investments, etc.)

• Not file married filing separately

• Have a SSN

• Not have investment income over $3,600

• Be at least 25 and under 65 years of age as of Dec 31st of the tax year.

• Have income under the following amounts: