Last week and this week we are taking a look at President-elect Trump’s tax plan. He declared that a “major tax bill lowering taxes in this country” would be one of his top three priorities. Please remember that nothing he has proposed is guaranteed to happen. But there are year-end tax moves that you can make now, with his plan in mind, to benefit your situation.
Last week we looked at the income side. This week we are looking at the deduction side.
Itemized deductions produce no tax savings for a year in which a taxpayer claims the standard deduction. Many more taxpayers would claim the standard deduction under President-elect Trump's tax plan. It calls for a dramatically increased standard deduction: $30,000 for joint filers (up from $12,600 for 2016) and $15,000 for singles (up from $6,300).
If the boosted standard deduction makes it into law for 2017, many taxpayers who itemize under current law and wouldn't be able to under the Trump plan would be better off accelerating next year's itemized deductions into this year, when they will generate a tax savings. And, even if the standard deduction proposal is watered down, itemized deductions still will be more valuable to a taxpayer this year than next if he expects to be in a lower marginal tax bracket in 2017.
For example, those whose 2016 medical expenses exceed the 10% of AGI floor (7.5% of AGI for those age 65 years or older) could accelerate into this year's discretionary or elective medical procedures or expenses, such as dental implants or expensive eyewear.
Individuals could boost charitable contributions (e.g., making two years’ worth of contributions this year to a favorite cause), pay state income tax and local property tax a bit early (keeping in mind that such taxes are not deductible for alternative minimum tax purposes), or make a year-end mortgage payment.
Consult with your tax advisor to determine how any item applies to your situation. IRS Circular 230 disclosure: To ensure compliance with requirements imposed by the IRS, we inform you that any U.S. federal tax advise contained in this communication (including any attachments) is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein.