The act of itemizing deductions is said to be an effective way of reducing one’s taxable income and maximizing tax savings. You get to claim a bigger deduction compared to the standard deduction. Not that fast, you will need to fill a Schedule A attachment to your earnings and also keep records of all your expenditures.
Here are things you need to know with respect to the new Tax bill-the Tax Cuts and Jobs Act if you have chosen to itemize than choose standard deduction:
- The Medical Expenses Deductions: The changes made are favorable to taxpayers. You are opportune to claim a deduction for the part of your expenses that is more than 7.5%(previously 10%, though expected to return to 10% this year) of your gross income adjusted through the previous tax year. You have the chance to deduct more in medical expenses. Other things remain unchanged. You can lay claim on personal expenses, expenses on a spouse, or expenses on your dependents, and you are expected to have paid those expenses in the same year you are requiring a deduction. Cosmetic-related surgeries and their treatments are not deductible with the exception of those on prevention or those for treating existing issues.
- The State and Local Taxes Deduction (SALT): There is now an overall limit to the amount you can deduct. The limit is $10,000 under the Tax Cut and Job Act. For instance, if you make a payment of $6000 property taxes and an income tax of $5,000, what you will lose is $1000 of the total $11,000 from 2018. It is either you claim $5,000 property taxes or $4000 income taxes, the $1000 paid on the $11,000 is not available again. This will be a difficult one for those who reside in states where the tax rates on income are high such as California, New Jersey, New York and the District of Columbia. For those who are married, you will need to divide $10,000 into two. You are only entitled to the reduction in local taxes, property taxes, and state taxes. You cannot deduct foreign real property taxes. This has been eliminated by the new provision.
- Repayment of Taxes to Enjoy Old Deductions:
According to the IRS, if you prepay 2018 property taxes in the month of December, they are deductible in the year 2017 given that they were assessed already. What this means is that you have received a bill for taxes in 2018 and have paid them before December 31, 2017.
There is nothing claiming a 2017 deduction for an anticipated 2018 taxes.
- Home Mortgages Interest Deduction:
Though, not yet eliminated, but has more restrictions now though most of the taxpayers may not feel the heat except those who can pay for sizeable mortgages. Throughout 2017, deductions on mortgage interest loans of about $1million were possible given that the money was used to acquire your first or the second residence, or half a million dollars if you are married and you have filed a separate return.
- Deductions That Affect Employees: Two beneficial deductions for the working population were eliminated by the New Tax Cut and Job Act. Previously, specific moving expenses can be deducted given the reason for relocation relating to your work. This was subjected to scrutiny anyway. Those itemized deductions claimable for expenses incurred on purposes relating to your work are now gone under the new development. Anyway, these were deductible given the fact that they are over 2% of your Annual General Income if the reimbursement was not done by your boss.
- Deduction on Theft and Casualty:
This one survived and it is claimable only if the loss is suffered as a result of a disaster declared federally. The event must be cited by the United States President as a National Disaster. This clause covers hurricanes, tsunami and not the theft of your brand new laptop.
It is always advisable to have a tax plan in 2019. Your tax accountant or tax preparer can help you determine how much you earn an income and your expenditures. They will also help you devise tax filing strategies and advise you better on whether to use Itemized deduction or Standard Deduction depending on your status.