In some ways, the tax reform bill passed by Congress this week stands to make filing federal income taxes a simpler process for the average person.
But one way the bill — ready to be signed into law by President Donald Trump — accomplishes this is by eliminating some itemized deductions after 2017.
Folks who lower their tax bill by claiming the standard deduction won’t be affected by the elimination of such deductions. But those who reduce their taxes by claiming multiple individual deductions — itemized deductions — will have fewer tax breaks to apply to their 2018 taxes.
In other words, if you itemize tax deductions, your 2017 tax return will be the last on which you can claim certain tax breaks.
H&R Block reports that, under the Tax Cuts and Jobs Act, the following four itemized deductions will end after tax year 2017:
Employee business expenses
Tax preparation fees
Investment interest expenses
Personal casualty and theft losses (with the exception of certain losses incurred in certain federally declared disaster areas)
So, anyone who itemizes their tax deductions and is eligible for any of those tax breaks in 2017 should make the most of them before Jan. 1.
RELATED: Check out these extremely simple ways to lower your taxes:
5 ridiculously simple ways to lower your taxes
5 ridiculously simple ways to lower your taxes
1. Contribute more to a retirement account
If you put money into a traditional IRA or 401(k) plan, you'll benefit in two ways. First, you'll get the financial security that comes with having savings available in retirement, and the earlier in life you start contributing, the more opportunity you'll give your money to grow. But you'll also benefit from a tax perspective, because the amount you contribute will go in pre-tax. What this means is that if you make $50,000 a year but put $5,000 into your 401(k), you'll only pay taxes on $45,000 of income. Talk about a win-win!
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2. Donate items you no longer use
Is your basement or hall closet overflowing with clothing, tools, and gadgets you don't need? If you donate those items to a registered charity, you'll get to claim a deduction on your taxes. All you need to do is obtain an itemized receipt of what you give away to verify your donation, and you're all set.
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3. Open a flexible spending account
Medical care can be a huge expense for some families. Americans spent an estimated $416 billion on out-of-pocket medical expenses in 2014, and that number is expected to climb to $608 billion by 2019. But if you sign up for a healthcare flexible spending account (FSA), you'll get to pay for eligible medical expenses, like copays and prescription drugs, with pre-tax dollars. For 2016, you can allocate up to $2,550 to an FSA, which means that if your effective tax rate is 25%, you'll save $637 by contributing the maximum. But don't make the mistake of overfunding your FSA. The money you contribute goes in on a use-it-or-lose-it basis, so if you put in the full $2,550 but only rack up $2,000 in eligible expenses, you'll have to kiss that remaining $550 goodbye.
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4. Use pre-tax dollars to pay for child care
Childcare is one of the greatest expenses families with young children face. The average American household currently spends $10,192 a year on full-time day care center care, $7,700 a year on regular after-school babysitting, and $28,900 on a full-time nanny. The good news, however, is that you can shave a fair amount of money off your tax bill by opening a dependent care FSA. Similar to a healthcare FSA, a dependent care FSA allows you to allocate pre-tax dollars to pay for eligible child care expenses, which include preschool and summer camp. For 2016, a couple filing a joint tax return can contribute up to $5,000 a year in pre-tax dollars. If you max out that limit and your effective tax rate is 25%, you'll save $1,250 in taxes. The only catch is that like a healthcare FSA, if you end up spending less during the year on eligible expenses than what you put in, you'll forfeit your remaining balance.
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5. Sign up for commuter benefits
Traffic and rail delays can be a huge source of daily aggravation. But if your commute can't serve the purpose of helping you relax and ease in and out of your workday, it can at least help you lower your taxes. All you need to do is sign up for commuter benefits through your employer, and you'll get to use pre-tax dollars to pay for the costs you already incur. For 2016, you can allocate up to $255 per month in pre-tax dollars for transit and up to $255 a month for parking for a combined total of $510. If you hit that maximum and your effective tax rate is 25%, you'll save $1,530 a year on your taxes.
Nobody likes paying taxes, and there's certainly no reason to pay more than you have to. With a few smart moves, you can lower the amount you ultimately fork over to the IRS and keep more money in your pocket.
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Here’s a personal example: I just yelled at my husband to hurry up and go buy new boots for work. He’s overdue for a new pair but has been procrastinating on the errand.
The thing is, he works in a profession in which uniform-related expenses generally qualify as a tax-deductible employee work expense.
So, if he makes that purchase by Dec. 31, we may be able to write it off on our taxes by itemizing our deductions. But if he makes that purchase Jan. 1 or later, there’s no chance of us getting a tax write-off for it because the employee business expense deduction will no longer exist.
If you have work-related expenses that might be deductible, check out the Internal Revenue Service’s primer on employee business expenses or talk to your tax preparer.
Congress has passed the largest piece of tax reform legislation in more than three decades. The bill will affect the taxes of most taxpayers, but one key point to keep in mind is that for most people, the bill won't affect your taxes for 2017 (the one you file in 2018).
Every April, many taxpayers wait until the last minute to file their federal income tax returns. Despite this tendency, there are many reasons to file your taxes early. If you will receive a refund, you may want to submit your return as quickly as possible. Additionally, there are benefits to filing early for those taxpayers who have a balance due.