There is never a bad time to think about ways to save on taxes and discover overlooked tax deductions. These common missed opportunities can reduce your tax burden and potentially put more money back in your pocket.
Check a Charity’s Status Before Donating
Taxpayers who make charitable donations to tax-exempt organizations may be able to claim a deduction on their federal tax returns. However, to receive the deduction, you must donate to “qualified” organizations.
To learn if the organization you would like to make a donation to is eligible to receive tax-deductible charitable contributions, use the IRS’s Tax-Exempt Organization Search tool. This online tool allows you to search for an organization’s tax-exempt status and filings. The IRS periodically updates its list of qualified organizations, and it just announced five organizations that are no longer eligible.
Health Savings Accounts for 2024
Health Savings Accounts (HSAs) are tax-advantaged savings accounts funded with pretax dollars. Funds can be withdrawn tax-free to pay for qualified medical expenses. An HSA must be coupled with a high-deductible health plan (HDHP). The IRS annually adjusts HSA and HDHP amounts based on inflation.
For 2024, the HSA contribution amount for individuals is $4,150 ($3,850 for 2023) and $8,300 ($7,750 for 2023) for those with family coverage. The minimum HDHP deductible for individuals is $1,600 ($1,500 for 2023) and $3,200 for family coverage ($3,000 for 2023). The maximum HDHP out-of-pocket cost is $8,050 for self-coverage ($7,500 for 2023) and $16,100 for family coverage ($15,000 for 2023).
American Opportunity Tax Credit (AOTC)
The AOTC provides a credit of up to $2,500 for post-secondary education expenses, per eligible student (not per tax return). So, taxpayers who are paying qualified expenses for more than one student may be able to take up to the full $2,500 for each one. The credit phases out at certain income levels.
Overlooked Deductions and other Tax Errors
If you discover you overlooked a deduction or have made an error in your tax return, an amended tax return may be the answer. Amended returns generally must be filed within three years from the date you filed the original return, or within two years after the date you paid the tax, whichever is later. However, there are exceptions to this rule. For example, when it comes to amending a tax return to claim a loss for worthless investments or nonbusiness bad debts, you have up to seven years.
Taxability of Disability Income
You must report as income on your tax return any amount you receive for a disability through an accident or health insurance plan paid for by your employer. If you paid the entire cost of a health or accident insurance plan, you do not have to include amounts you receive for your disability as income.
In one case, a taxpayer’s employer provided disability insurance to employees and paid 100% of the premiums. The taxpayer received $105,000 in disability payments and did not report them on his joint return. The U.S. Tax Court ruled that the disability payments were not excludable from his gross income and, therefore, he owed $26,292 in tax and an accuracy-related penalty. (TC Summary Op. 2023-17)
Next Steps
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Our firm provides the information in this article for general guidance only, and does not constitute the provision of legal advice, tax advice, accounting services, investment advice or professional consulting of any kind. The information provided herein should not be used as a substitute for consultation with professional tax, accounting, legal or other competent advisors. Before making any decision or taking any action, you should consult a professional advisor who has been provided with all pertinent facts relevant to your particular situation. Tax articles in this blog are not intended to be used, and cannot be used by any taxpayer, for the purpose of avoiding accuracy-related penalties that may be imposed on the taxpayer. The information is provided “as is,” with no assurance or guarantee of completeness, accuracy or timeliness of the information, and without warranty of any kind, express or implied, including but not limited to warranties of performance, merchantability and fitness for a particular purpose.
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