On December 22, 2017, the Tax Cuts and Jobs Act (“Act”) was signed into law. The Act will change a large number of deductions beginning in 2018. In addition, the Standard Deduction will rise and Personal Exemptions will be mostly eliminated. Tax planning for 2018 and forward will be discussed in detail in future posts.
Here, we’ll be looking at things you can do in 2017 to offset some deductions being changed or eliminated starting in 2018. Mostly, prepaying items (aside from State and Local Taxes, discussed below) or incurring expenses (paying via credit card for example) is needed to increase your expenses, thus increasing your potential deductions.
Please note not all item apply to everyone – if you can’t deduct items now (such as for Job Related Moving Expenses), you can’t incur costs for moving and expect to deduct them in 2017.
There are two itemized deductions that you can pay for in 2017 that will help for this year:
- Out of pocket medical expenses – the ‘floor’ you need to exceed to count here has been lowered to 7.5% of your adjusted gross income (AGI) from 10%. Since the higher Standard Deduction may be more beneficial that itemizing starting in 2018, any medical costs you can pay for now can be deducted in 2017, if you qualify.
- Property taxes – prepaying 2018 property tax can be done, in whole or in part, as long as the tax has been assessed by the taxing body in 2017. For example, in Illinois, the property taxes we pay are for the preceding year (we paid 2016 tax bills in 2017). Property taxes for 2017, normally paid in 2018, have been assessed already and can be paid before December 31st.
Please note that prepaying your 2018 State or Local taxes are NOT allowed as a deduction in 2017 as this was specifically eliminated in the Act.
Many Itemized Deductions on Schedule A will be eliminated starting in 2018, including all of the Miscellaneous Itemized Deductions. The most commonly used are:
- Casualty & Theft Losses – if you’ve been recovering from one (or more) of these for 2017 events, you should consider paying for recovery/repair efforts in 2017. Moving forward, these losses will only be allowed for Federal Disaster Areas as declared by the President.
- Unreimbursed Employee Expenses, including travel costs
- Investment Fees
- Home Office Deductions
- Union Dues
- Tax Preparation Fees
- Uniforms not suitable for ordinary wear (such as nursing uniforms)
- Safe Deposit Box Fees
If possible, you should pay any of the above items before the end of 2017.
More posts will be coming soon for changes to the tax laws that will affect us moving forward for 2018 and beyond.
Please send me your thoughts & comments and please share with your friends.
Thomas C. Hodge, CPA
Hodge Group LLC
3943 N. Austin Avenue
Chicago, IL 60634