Even though January 1, 2018, has passed, there is still time to take some steps to reduce your tax liability for 2017. Even though it’s true that most money-saving options to accelerate deductions or defer income are more limited after December 31st, you may still have options. The recently passed tax bill has promised most taxpayers a cut in their taxes, but most observers opine that the majority of the cuts will inure to the benefit of the 1%, or wealthiest segment of the population. Still, there are benefits for other taxpayers that they will see this year, such as a decrease in payroll taxes, though many tax benefits will not become effective until the next tax year. If you are concerned about your tax liability, they should seek advice on what you can do to reduce their tax obligations under the new tax bill. Even though 2017 is over, here are some ideas on how you may be still be able to reduce your 2017 taxes:
1. Contribute to Retirement Accounts. If you recently opened an IRA, or forgot to contribute to your IRA in 2017, you may have thought you had to make all your contributions by December 31, 2017 for the 2017 tax year. In fact, you can continue to make contributions to your IRA account up until April 17, 2018. If you have a SEP or Keough, you can make contributions up to October 15, 2018, by filing an extension. You must deposit contributions for a year by the due date (including extensions) for filing your federal income tax return for the year. If you obtain an extension for filing your tax return, you have until the end of that extension period to deposit the contribution, regardless of when you actually file the return.
Annual contribution limits will generally depend on the type of retirement plan, your age, and your salary. Making a deductible contribution can help you lower your tax bill and save for your retirement. To take full advantage of tax-free compounding, it is generally recommended that you make contributions as soon as possible.
2. Make an Estimated Tax Payment. It is possible your withholding was not quite right or you realized a windfall from the sale of stock. If your windfall was received after August 31, 2017, then file Form 22010–Underpayment of Estimated Tax, so that you can annualize your estimated tax obligation and perhaps save some money.
3. Itemize Your Deductions. This may take some time to figure out if you did not maintain accurate and complete records. For tax year 2017, the standard deduction amounts are as follows:
|Filing Status||Standard Deduction|
|Married Filing Jointly||$12,700|
|Married Filing Separately||$6,350|
|Head of Household||$9,350|
If your deductions add up to more than these amounts, then take advantage of itemization. For instance, include home mortgage interest, state and local income taxes or sales taxes (but not both), gifts to charities, casualty and theft losses, job search expenses, moving expenses, business car expenses, professional dues, auto registration, medical expenses that exceed 2% of your adjusted gross income.
4. Take a Home Office Tax Deduction. The rules for home offices have changed for the better, so you should re-examine whether you should be taking a home office tax deduction. If you have a home office, you may be able to write off a percentage of your expenses such as rent, utilities, insurance, and cleaning services based on the square footage of the office to the square footage of the house. The home office deduction is available for homeowners and renters, and applies to all types of homes.
Beginning in tax year 2013, taxpayers may use a simplified option when figuring the deduction for the business use of their home. This new simplified option can significantly reduce the burden of recordkeeping by allowing a qualified taxpayer to multiply a prescribed rate by the allowable square footage of the office in lieu of determining actual expenses. If you previously decided not to take a home office deduction because the requirements were too burdensome, you should re-examine this deduction.
Regardless of the method chosen, there are two basic requirements for your home office to qualify for the deduction (1) you must regularly use part of your home exclusively for conducting business, and (2) you must show that you use your home as your principal place of business.
5. Contribute to an Annual Health Plan Account. If you have a high deductible health plan (HDHP), you can make contributions up to April 18, 2018. Limits are $3,350 for singles and $7,750 for families.
6. File on Time, Pay on Time. Filing and paying on time eliminates late penalty and interest fees. The failure-to-file penalty is generally more than the failure-to-pay penalty. You should file your tax return on time each year, even if you’re not able to pay all the taxes you owe by the due date. You can reduce additional interest and penalties by paying as much as you can with your tax return. If you are unable to file on time, use Form 4868 by April 17, 2018, for an extension to October 15, 2018, and make an estimated payment. This form allows you to avoid the late filing fee penalty.
7. Call Schloemer Law Firm
These are just a few ideas to get you started. Did you know that Schloemer Law Firm offers tax advising and preparation services for individuals and businesses? Please call us at 262-334-3471 if you would like to discuss your particular situation and if there are ways you can still reduce your 2017 tax obligations.
If you are interested in reading more about changes in the Tax Cuts and Jobs Act and how they affect you, read our client alerts on this topic:
- CLIENT ALERT: $10,000 Limit on State and Local Tax Deduction under New Tax Law.
- CLIENT ALERT: Corporate Income Tax Rate Drops to 21%, and Individual Rate Brackets are Modified under New Tax Law.
- CLIENT ALERT: New 20% Deduction for Qualified Business (Pass-Through) Income under New Tax Law.
- CLIENT ALERT: Whether Home Mortgage Interest and Home Equity Loan Interest are Deductible under the New Law.
- CLIENT ALERT: New Treatment of Alimony under the New Tax Law.
Disclaimer: The information contained in this post is for general informational purposes only and is not legal advice. Due to the rapidly changing nature of law, Schloemer Law Firm makes no warranty or guarantee concerning the accuracy or completeness of this content. You should consult with an attorney to review the current status of the law and how it applies to your unique circumstances before deciding to take—or refrain from taking—any action. If you need legal guidance, please contact us at 262-334-3471 or [email protected]