Get Ahead of Tax Reform: How Prepaying Expenses can Lower Your Tax BillDecember 12, 2017
Looking to save on taxes? Get ahead of the curve by prepaying 2018 expenses before December 31st 2017, including property taxes, mortgage interest and more…but you have to act soon!
If tax reform passes, as it is currently written, in 2018 many Americans will no longer benefit from itemizing their deductions because they won’t meet the $24,000 standard deduction (married filing jointly), $18,000 (head of household) or the $12,000 (single). With the approach explained below, you can potentially save thousands of dollars in taxes in 2017. But, you have to act in December!
Prepaying expenses in 2017...it’s worth it!
Individual taxpayers are on the “cash basis” of accounting so what you pay in 2017 for certain expenses can be included on 2017’s Schedule A – Itemized Expenses. Therefore, if you prepay certain 2018 expenses in December 2017, you can deduct them in 2017. The more itemized expenses you have on Schedule A, the lower your federal income taxes will be in 2017.
How can you ensure tax savings?
Get head of the curve by prepaying 2018 expenses in December, 2017, including the following:
- Property taxes
- State taxes
- Mortgage interest
- Charitable donations
- Health care costs
Actions to take before year end
Before December 31, 2017,
- Head over to your local city or town hall and prepay your 2018 property taxes. You’ll get an extra deduction of your property taxes in 2017, as long as you are not in the Alternative Minimum Tax (AMT).
- If you have any state estimated tax payments that are due in January, you can prepay them in December and receive an additional deduction in 2017, as long as you are not in AMT.
- Then, contact the bank that holds your mortgage and prepay your January, 2018 mortgage payment, including the interest portion. Be sure to ask the bank to designate the proper portion to January’s interest payment. You should receive a 2017 Form 1098 from your bank which includes the pre-payment of 2018 interest.
- Also, if you regularly support nonprofits, including churches and synagogues, prepay those charitable contributions by December 31, 2017 (be sure to get a receipt).
You can use this same approach with other expenses, as well.
You can also prepay safe deposit boxes, and any other item on Schedule A, including significant health care costs anticipated in 2018 (if you expect to have health care costs above 10% of your adjusted gross income). You could consider prepaying long-term care insurance, laser vision corrective surgery, and many other health care costs.
While nothing is certain with the tax reform plans in Washington, you can ensure that you are doing all you can to save on taxes by prepaying these expenses. Start today!
Questions? Contact any member of our Tax Services Team.