Due to tax law changes anticipated to go into effect for tax year 2018, many individual tax deductions, credits and exemptions that will benefit you during the upcoming tax season (TY2017), will provide little or no benefit for tax year 2018 and after.
However, some deductible expenses that you would typically remit during 2018 can be prepaid on or before 12/31/17; these pre-paid items can be deducted on your 2017 tax return (upcoming tax season). For many of you, prepaying will generate a significant additional tax break that you will lose if you delay payment.
Note that only select pre-payments of 2018 expenses are eligible to be claimed on your 2017 tax return; common deductible pre-payments include:
- 2018 property tax (primary residence and second home). Does not apply for rental properties.
- Mortgage interest (not principal payments) on your home mortgage. Does not apply for rental properties.
- State and Local Income Tax (this one can be tricky to ensure a proper tax benefit).
- Maximize your charitable contributions (cash and non-cash) in 2017. For clients with non-cash contributions totaling more than $500, special reporting will be necessary.
- Medical Expenses & Out-of-Pocket Premiums, including Medicare (note that medical deductions typically provide a tax benefit only when total medical costs are relatively high – i.e. at least 11% (for those under 65) and 8% (for those 65 and older) of your adjusted gross income (Line 37 of form 1040).
- Moving Expenses (if you are planning a move in 2018, prepaying in 2017 could significantly reduce your taxes). Logistically speaking, pre-paying moving expenses could be challenging, and risky.
- Conversions of Roth IRA’s to Traditional IRA’s. Conversions are an old trick to reach into a lower tax bracket and tax payment. For some, a conversion can be more beneficial, both long and short-term, than continuing to hold a Roth. The conversion option will likely be eliminated beginning 1/1/18.
- Note that the individual healthcare mandate is expected to no longer be in effect for tax year 2018; therefore, clients without healthcare insurance coverage for themselves and family members at any time during 2018 will not be penalized on their 2018 tax return. Although, for the upcoming tax season (TY2017), you may still be penalized for not having healthcare coverage, we anticipate that the Trump administration could retroactively waive 2017 coverage failure penalties.
- Additional prepayments not listed here may qualify as deductible on your 2017 tax return. Give us a call to discuss.
Small Business Clients:
Beginning 1/1/18, many tax changes will go into effect for small businesses; however, to-date (12/18/17), important FINAL details have not been published by the US House Ways and Means Committee or by the US Senate. Once these changes are released to the public, Doorstep Mobile will contact our clients via e-mail and blog updates.
Give us a call, email or text if you have further questions. In the meantime, for many of you (but not all), it would be advisable to pre-pay as much of the above-referenced expenses as you are able. Best practice would be to contact your county tax commissioner and mortgage lender to ensure that any pre-payments of property tax, PMI and mortgage interest are reported properly on your 2017 mortgage statement. To be eligible as a deduction on your upcoming 2017 tax return, pre-payments much be recorded on your 2017 mortgage statement and other relevant tax documents.