How to make the most of popular deductions before they disappear
As Americans begin their year-end financial planning the main message is clear: Americans should use tax deductions that exist now, because many are slated to disappear on Dec. 31 under a rewritten tax code.
About a third of all Americans itemize deductions. Among the deductions slated to disappear under the Trump Administration are the deduction for state and local taxes, deductions for medical and dental expenses, some deductions available to homeowners and a host of smaller deductions, such as for job-hunting and alimony. Congress aims to finalize changes by Christmas.
Americans who fail to act at the end of this year may lose thousands of dollars in possible deductions. In the latest contribution to LetsMakeaPlan.org, CFP Board offers a list of 12 year-end financial moves and four changes Americans should be aware of stemming from changes to the tax code under the Trump Administration.
- This could be the last year that you will be able to deduct all state and local taxes (SALT), medical and dental deductions (must exceed 10 percent of AGI for those under age 65, 7.5 percent for those above); and miscellaneous deductions, such as tax-prep fees, job-hunting and business car expenses, and professional dues, if they exceed more than two percent of AGI. Consider pre-paying medical expenses or dental expenses before the end of the year, so that you can take as many deductions as possible.
- Deductions for property taxes over $10,000 may disappear and the mortgage interest deduction may be limited to debt under $500,00. Homeowners can consider pre-paying taxes or making January’s mortgage payment in December.
- A tax change that could go into effect next year forces investors to sell stocks on a first-in, first-out basis. That makes it harder for investors to sell underperforming investments in taxable accounts to offset gains. If you want to take advantage this year, you can sell underperforming stocks this year according to some specific rules. If you have more losses than gains, you can deduct up to $3,000 against ordinary income; and if you have more than $3,000, you can carry over that amount to future years. If you’re going to sell something and replace it within 30 days, the new asset can’t be “substantially identical,” which is known as the wash sale rule. Avoid it by waiting 31 days and repurchase what you sold, or replace it with something that’s close, but not the same as the one you sold.
- Another possible tax change may reduce the tax on income for small businesses and solo enterprises. If you are self-employed, consider waiting until January to invoice for some work. The change also means that your contributions to a small business retirement plan this year are even more valuable. If you open a qualified retirement account by Dec. 31, you have until the day you file your taxes next year, including extensions, to make this year’s contribution. One plan to consider is the solo or one-participant 401(k) plan, which allows total contributions of up to $54,000 for 2017.
A CERTIFIED FINANCIAL PLANNER™ professional can help Americans plan their year-end financial strategies in an unusually tumultuous year.
ABOUT CFP BOARD
The mission of Certified Financial Planner Board of Standards, Inc. is to benefit the public by granting the CFP® certification and upholding it as the recognized standard of excellence for competent and ethical personal financial planning. The Board of Directors, in furthering CFP Board’s mission, acts on behalf of the public, CFP® professionals and other stakeholders. CFP Board owns the certification marks CFP®, Certified Financial Planner™, CFP® (with plaque design) and CFP® (with flame design) in the U.S., which it awards to individuals who successfully complete CFP Board’s initial and ongoing certification requirements. CFP Board currently authorizes nearly 80,000 individuals to use these marks in the U.S.
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