State and local taxes — or SALT — deduction can make a major difference in how many dollars your household owes or earns come tax season. As finance author and podcast host Suze Orman shared in a blog post, new federal law increases the federal deduction for state and local taxes to $40,000 per household from its previous $10,000 limit, which it will revert back to in 2030. Single tax filers are eligible for $40,000 and married couples filing a joint tax return are also eligible for a $40,000 deduction.
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Orman noted that a modified gross income below $500,000 is a key rule for claiming the SALT deduction for both single filers and married couples filing jointly. This is a phase-down for households compared to the previous $600,000 for the prior $10,000 cap, according to J.P. Morgan. Meanwhile, $20,000 is the maximum SALT deduction for married couples filing separately and the phaseout begins on income above $250,000.
Here are some suggestions on how to capitalize on this temporary tax boost.
Itemize Your Deductions
Itemizing is worth a closer look, especially if you’re in a high-tax state, according to Fidelity. There are generally four categories in addition to SALT that someone can consider claiming: medical expenses, home mortgage interest, charitable contributions and theft and casualty losses due to a federally declared disaster.
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Use Retirement Contributions
Orman suggested moderating your Roth conversions. Contributions to your retirement accounts can reduce your modified adjusted gross income and help you stay below the phaseout threshold.
However, if you’re making Roth conversions with income between the $500,000 to $600,000 modified adjusted gross income range, the phaseout could create a “tax bomb,” Kevin Brady, certified financial planner (CFP) and senior vice president at Wealthspire Advisors said to CNBC.
Time Your Income
“See if you can push your income just below the limits to claim the highest possible SALT deduction,” Orman said.
If at all possible, be strategic about large deposits like severances or holiday bonuses and see if you can defer them to a future tax year. You can also accelerate deductions by, say, prepaying property taxes or making charitable contributions this year.
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This article originally appeared on GOBankingRates.com: Suze Orman: How To Make the Most of the SALT Deduction To Save on Your Taxes
