With the holiday season in full swing most Americans don’t want to be thinking about taxes. But with the tax reform bill passing today now is the perfect time to make sure you are paying attention to your potential deductions for THIS year.
With the House of Representatives passing H.R.1 their version of the tax bill on November 16 and now with the Senate passing the Tax Cuts & Jobs Act, changes are definitely coming. However, it is different from the House bill, so the two versions had to be reconciled in a joint conference committee. The Final Bill passed today.
While most changes won’t take effect until the 2018 tax year you may want to pay attention and make some moves before December 31, 2017 to take full-advantage of existing tax deductions.
The biggest changes look to be an increase in the standard deduction for both individuals and those filing jointly.
Deductions Affected by Tax Reform
- Doubling the Standard Deduction
Beginning with the 2018 Filing Year, the standard deduction will be doubled for many taxpayers making the standard deduction greater than itemized deductions. To maximize any itemized deduction consider utilizing them before the end of 2017. See below for deductions to consider for the 2017 filing year.
- Changes to the State and Local Income and Sales Tax Deductions
- While the House & Senate still need to reconcile the differences in their newly passed bills it looks as if this deduction will be reduced and possibly eliminated. The Senate placed a $10,000 cap on the deduction and the House eliminated it.
- Medical Deductions
The Senate Finance Committee bill eliminates the deduction but the full Senate may preserve or further limit the deduction.
- Student Loan Deductions, Moving Expenses, Alimony Payments
Currently these are deductible as part of the Gross Adjusted Income with an income limit on the student loan deductions paid on interest. Both the House passed bill and the Senate Finance Committee act eliminate these deductions. However the Senate may vote to make additional changes to how these are affected, they could eliminate them or preserve them.
- Mortgage Interests
For any loan obtained after December 31,2017, the bill passed by the House limits the interest deduction to a principal of $500,000 ($250,000 for separate, single, or head of household). However, the Senate Finance Committee bill maintains the present amounts. Both the House and Senate Finance Committee bills eliminate the interest deduction on loans used to purchase a second home and home equity loans.
6 Itemized Deductions to Consider Utilizing in the 2017 Tax Year
With the above tax reform changes many tax payers will be affected by how they file their taxes. Having a doubled standard deduction will be a positive change for anyone who doesn’t currently itemize their deductions. However, with the increase it may mean that many can no longer itemize deductions due to their standard being higher. And still, for others the elimination and/or changes to many existing deductions may mean that itemization is no longer available to them.
But, here’s what you can do this year to maximize on the existing deductions.
- Give to your favorite charities
While it appears this deduction is safe from cuts you’ll need to consider whether you current amount of charitable giving will be enough to itemize once all of the other deductions are removed. While you can still claim charitable gifts consider making a higher donation now. Be sure to follow the IRS donation deduction rules.
- Buy a Vehicle
Sales tax on major purchases is currently deductible. If the sales tax deduction is eliminated during the joint-committee negotiations, then so will the write-off for major purchases such as; cars, trucks, SUV’s, vans, motor homes, recreational vehicles, boats, planes, and even pre-fabricated homes. But if you make these purchases before the end of the year, you’ll be able to utilize the write-off. So if you are planning on purchasing a new vehicle, do it now, don’t wait for 2018.
- Prepay your January mortgage.
With the standard deductions increasing, you may discover that you no-longer need to deduct the mortgage interest. Prepaying your January mortgage in December will push that deductible interest into the 2017 filing season.
- Go to the doctor.
If you have more than 10% of your adjusted gross income in medical expenses then those expenses can be deducted. So be sure to get any physicals, dental appointments before the end of the year if you are close or even already over that amount so you take full advantage of the deduction. So if you make $35,000 in adjusted gross income and your medical expenses for the year is $3500 or more, you would be able to claim the deduction.
- Pay State Taxes before Dec. 31, 2017
41 U.S. states have income tax on wages and salaries. Pay your 4th quarter estimated state tax now, even if it’s not due until January, so that you can receive your federal tax deduction with the 2017 filing. If you wait you’ll miss the deadline for those tax deductions to be allowed.
- Pay Real Estate Taxes Early
While it seems that there may be some leeway in the allowable real estate tax deductions of up to $10,000. But if your property tax bill is higher than that, pay it in December before the 2018 changes take affect in January.
Are you curious about what your taxes will look like come the 2018 filing season? Use this handy calculator to find out.