Under the tax reform plan recently announced by the Trump administration, most itemized deductions would be eliminated, except those for charitable donations and mortgage interest.
Because of this potential change, you may decide you want to accelerate certain deductible expenses you would have had in 2018 into 2017. Here are three key deductions to consider:
- State and local income taxes. This is often a big-ticket item for residents of states with high tax rates. If payments are due on Jan. 1, 2018, pay them in December.
Alternatively, you may elect to deduct state and local sales taxes. This deduction, which is often a better option for residents of low-tax states, can be claimed in one of two ways:
• Deduct the actual sales tax paid during the year based on your records and receipts.
• Use the IRS table. In addition to the table amount, you can deduct tax paid on certain big purchases like cars and boats.
- Mortgage interest and property taxes. As with state and local income taxes, you may be able to increase your current deduction by prepaying mortgage interest and property taxes. (Note that the proposed tax reform plan would repeal property tax deductions, but not mortgage interest.)
You may even consider using a home equity loan to consolidate debts if the interest would qualify as deductible mortgage interest. The loan is secured by your home, so use this technique sparingly.
- Charitable donations. Although charitable donations aren’t on the list of proposed tax reform cuts, you can bolster your deduction by making donations late in the year. Be aware that you must observe strict recordkeeping requirements for monetary gifts of $250 or more.
Suppose you charge a donation on your credit card on Dec. 31. The gift is still deductible in 2017, even though you won’t pay the charge until 2018.
Finally, remember that itemized deductions are reduced for high-income taxpayers. Carl Heinemann, your Chattanooga CPA, can help you figure out what deductions are most beneficial for you.