Our tax liability is about to shift, and the savvy taxpayer can take advantage of changes and deductions to lower their bill even further.
Health Care Mandate Repeal
While unpopular, the mandate was shoring up the insurance market with healthy payers who didn’t utilize the service often.
“People may resent being told to buy something. But if they don’t buy health insurance, premiums rise for those who do. And taxpayers are on the hook for the emergency care that many uninsured people fail to responsibly anticipate.” –Bloomberg
Until the market levels out and discovers a new way to keep insurance affordable, the savvy tax-planer can take advantage of pre-tax health savings accounts (HSA). In 2017, you can put up to $3,400 for individuals/$6,750 for families into a qualified savings account deducting the full amount from your taxable income. Any usage for qualified medical expenses is also exempt from taxation. The money rolls over for use year after year. And bonus: the interest earned is also tax exempt!
Medical Expense Deductions
The new tax law retains and expands the benefits of the medical expense, which was on the chopping. For 2017 and 2018, all taxpayers who itemize their deductions will be able to deduct qualifying medical expenses exceeding 7.5 percent of their adjusted gross income. For 2019 the rate returns to the current 10 percent figure.
Mortgage Interest Deduction
Originally cut from $1.1M mortgage down to $500K, the new deal compromised at $750K of qualified first mortgages. The savvy taxpayer will note that only qualified loans are able to have their interest deducted.
“the deduction for interest on home equity debt (meaning re-fis not related to improving your home) will be eliminated beginning in 2018 – but it will return in 2026.” – Forbes
A new way to deduct costs from your home? Check to see if you qualify for a home office deduction. If you do, a portion of your house payment and utilities may be tax deductible. Plus, a home office qualifies a sizable amount of business-to-business driving for the lucrative vehicle mileage deduction.
Many Americans have shifted over to work in the “Gig Economy”, or own their own businesses. In fact, according to the Tax Foundation, the vast majority of businesses in the US are pass-through businesses. In 2014, out of the 30.8 million private business establishments in the United States, 28.3 million were pass-through businesses.
Depending on how you are incorporated, the new tax plan can work greatly in your favor. S-Corps, LLCs, partnerships, and sole-proprietorships may qualify for a 20% deduction off the top of their gross income. The remaining income would also get a tax break from 39.6% to 29.6%.
Plus, being incorporated hosts a multitude of tax benefits, including eligibility for lucrative deductions, like the mileage deduction.
Miscellaneous Tax Deductions Still in the Mix
The charitable donation deduction is still valid. Mileage logged while doing charity work is deductible at 14¢ per mile. For anyone considering moving from a high tax state (or any reason, really), the moving expense deduction is still available too (18¢ per mile). That includes the cost of the move and mileage. The business mileage deduction also increased a penny to 54.5¢ per mile.
The best way to make sure you capture the full extent of the mileage deductions (and protect yourself from an audit) is to tracking your miles driven accurately and report it properly.
Good Luck in Lowering that tax bill!