- December 31, 2017
- Posted by: admin
- Category: IRS, Tax, Tax Deduction, Tax Law, Tax Rate, Tax Reform
There is generally a flurry of last-minute efforts to reduce tax bills at the end of the year. However, with tax reform now law, taxpayers are stressing more than usual this year over what to do to avoid writing a big check for the 2017 tax year – and not be caught off-guard in 2018. Many questions involve some serious changes such as, “Should I incorporate?” or “Should I capitalize my business?” However, you do not have to make monumental changes in your lifestyle to see a little extra change in your pocket come tax time. Here are 10 relatively stress-free year-end moves to make to save on taxes after tax reform:
- Give To Charity. Charitable donations are an easy way to reduce your taxable income if you itemize. In order to claim a charitable deduction on your tax return, you must itemize your deductions on a Schedule A. If you anticipate itemizing your deductions for the 2017 tax year but not doing so in 2018, consider giving to charity by year-end to maximize your deductions.
- Pre-pay Property Taxes. Under the new law, deductions for state and local sales, income, and property taxes normally deducted on a Schedule A remain in place. There is a catch: Beginning in 2018, there is a $10,000 cap ($5,000 for married taxpayers filing separately) on the total of state and local sales, income, and property taxes. If you live in a state with high income or property tax rates, the cap may limit your ability to deduct both in 2018. However, there is no such limit in 2017 (other than the overall limit on itemized deductions). That means that taxes paid in 2017 should be deductible for the 2017 tax year. State and local income taxes paid in 2017 for taxes imposed for the 2018 tax year will be treated as paid in 2018. Nevertheless, while you cannot pre-pay your 2018 state and local income taxes in 2017 to avoid the cap, there is not, to date, a similar restriction under the new law on property taxes.
- Pay Off That Home Equity Loan. The mortgage deduction remains in place for 2018 – but there is a change. As of December 15, 2017, there is a limit on new acquisition indebtedness – your mortgage used to buy, build or improve your home – of $750,000 ($375,000 for married taxpayers filing separately). The limit for mortgages taken out for acquisition indebtedness before December 15, 2017, is $1,000,000 ($500,000 for married taxpayers filing separately). However, for tax years 2018 through 2025, there is no deduction available for interest on home equity indebtedness – indebtedness other than acquisition indebtedness that is secured by your home. If you have the resources available and there is no pre-payment penalty, consider paying off the loan early so that you do not lose the value of the deduction.
- Spruce Up Your Home Office. If you are an employee who works from home, there is some bad news for you in the tax reform law: The home office deduction on Schedule A is disappearing. However, it remains in place for 2017. If you normally claim the home office deduction, now might be a good time to spruce up the joint. That paint job or electrical work that needs to happen? Reasonable and necessary expenses will still be deductible so long as you pay for them by year-end. And if you are an independent contractor or a business owner, do not panic: You can still claim your home office expenses in 2018. That does not mean you should not spend a little extra in 2017 if you are looking to boost business expenses and trim year-end income.
- Stock Up On Office Supplies. As the home office goes, so do unreimbursed job-related expenses. If you are an employee but provide your own supplies such as copy paper, pens, and paper clips, you will not be able to claim those costs in 2018, but you can still take advantage of the deduction for 2017. Take inventory of what you may need this coming year and pay a trip to your local office supply store to stock up in advance on what you will need for the coming year. Again, if you are an independent contractor or a business owner, do not worry: Your deduction is not going anywhere.
- Go On A Job Search Blitz. The New Year is a great time for resolutions and that might include finding a new job. But, those job search expenses that you used to be able to deduct on your Schedule A? They will not be deductible in the new year. They remain deductible for 2017. Instead of moping about your current job situation, take charge now. While you cannot deduct the cost of looking for your first job or looking for a job in a new profession, you can deduct the costs of finding a job in your current profession. This includes items such as resumes and stamps, fees paid to employment agencies, and the costs of getting a portfolio, lookbook or other work samples together. If you do it now, you can take advantage of the deduction – and get a jump on the competition in the new year.
- Top Up Those 529 Plans. You cannot claim a federal income tax deduction for contributing to a 529 plan, but beginning in 2018, 529 plans are expanding to allow you to use distributions from the plan to cover more expenses. You already knew that you could use funds for college, but beginning in 2018, you can use up to $10,000 of 529 savings plans per student for public, private and religious elementary and secondary schools. If the idea of paying for elementary school and college scares you more than a little, consider putting away money now to use in a few years. And, if your bank balance is already on the low side from all of that holiday spending, relax. You do not have to write a huge check today but you can schedule regular payroll or bank transfers of just a few dollars moving forward.
- Schedule Last-Minute Medical Procedures. Medical expenses were on the chopping block as part of tax reform. Not only did they survive the cut but also Congress moved the floor back to 7.5% and made it retroactive to the beginning of 2017. What that means is that if you itemize your deductions, you can deduct medical and dental expenses paid this year which exceed 7.5% of your adjusted gross income (AGI). Here is how that works. Let’s say your AGI is $40,000 and your medical expenses are $5,000. Assuming you itemize, you can claim $2,000 as a deduction, or $5,000 in expenses less the floor (7.5% x $40,000 = $3,000).
Medical expenses include such items as prescriptions, doctor’s visits, and health insurance premiums, as well as other expenses like that dental procedure or operation you have been putting off. Surgeries and procedures do not have to be for a life-threatening condition to be considered medically necessary; they might include anything from cataract removal to a root canal. Surgeries and expenses related to treatment in foreign countries may also be deductible.
- Go See Your Tax Pro: If you are a regular reader, you know that I am a big proponent of finding a good tax pro. However, beginning in 2018, line 22 on your Schedule A is no more and tax preparation expenses will no longer be deductible. Ditto for expenses related to certain legal and tax advice. So, here is some advice that you do not have to pay for: If you generally deduct tax and legal fees, take advantage of the opportunity to do so in 2017. Pay any outstanding bills now (your tax pro or lawyer will thank you) and ask whether any fees are payable in advance: I have heard that some companies are offering this as an option. Even if you are not ready to figure your taxes for next year, consider setting up a planning meeting now.
10. Get Married. Okay, so maybe getting married is not exactly low stress. That may depend on who you are and whom you are marrying. And I would be the last person to tell you to get married just for tax reasons. However, if you were thinking about getting married, keep in mind that this tax reform bill is marriage-friendly. The expanded Child Tax Credit, for example? Your options for income limits are married “and all other taxpayers.” In fact, the numbers under the new law are overall advantageous for many married couples and not necessarily as advantageous for singles or heads of household.