Here’s a new tax prescription for medical expenses

The new tax reform law — the Tax Cuts and Jobs Act (TCJA) — preserves the deduction for medical expenses, unlike many other itemized deductions. But that’s only part of the good news for itemizers. The TCJA also temporarily rolls back the threshold for deducting medical expenses to 7.5 percent of adjusted gross income, from 10 percent.

This change applies to the 2017 and 2018 tax years. In other words, it’s retroactive, so you still may benefit on your 2017 return.

How to determine your medical deduction for the year

Add up all your unreimbursed expenses that qualify as medical care. This can range from payments for doctor and dentist visits to prescription drugs and equipment like wheelchairs. If the total exceeds the tax law threshold, you deduct only the excess. Otherwise, you get no deduction.

Now that the new tax law lowered it to 7.5 percent of adjusted gross income, it’s easier to qualify for deduction. Here’s what you can do:

  • For 2017: Go back over your records to see if any deductible expenses have fallen through the cracks. Those extra expenses may be enough to push you over the 7.5 percent mark or increase an existing deduction.
  • For 2018: Because of the lower limit, this may be the last year you qualify for a medical deduction. Try to schedule routine expenses such as medical exams and dental cleanings before the end of the year. Or you may decide to undergo that surgery you’ve been putting off.

This may represent your last opportunity to claim a medical deduction, especially if you don’t expect to itemize deductions in coming years. If you have tax questions about medical deductions or anything else, contact Dye and Whictomb, Fort Collins CPA’s

How to cut taxes under the new tax act

Now that the massive new Tax Cuts and Jobs Act (TCJA) is finally the law of the land, what should you do? Every situation is different, but here are several practical suggestions for improving your tax outlook for 2018 and beyond:

  • Adjust your withholding. There are “winners” and “losers” due to changes in tax rates, the increased standard deduction, the loss of personal exemptions and cutbacks and repeals of deductions. We can help you figure out how this will affect your situation. Depending on your needs and wants, you may end up increasing or decreasing your take-home pay by revising your W-4.
  • Make your move. Pulling up stakes just because of new laws is a drastic reaction. However, if you were planning to move soon anyway, now may be the time to do it if you reside in a high-tax state. The TCJA limits the annual state, local and property tax deduction to $10,000 for itemizers. If you do move, remember that job-related moving expenses are no longer deductible.
  • Pile up medical expenses. The threshold for deducting medical expenses is rolled back to 7.5 percent of adjusted gross income (down from 10 percent) for 2017 and 2018. If you can clear the lower hurdle this year, schedule routine doctor and dentist visits or finally undergo that surgery you’ve been putting off. The extra expenses will boost your medical deduction.
  • Tap a 529 plan for private school. The new law expands the use of 529 education savings plans to cover private elementary and secondary schools. It’s not just for college or grad school anymore. Distributions are exempt from tax, but be careful. Make sure you’ll still have enough money in the account to pay for higher education.

Finally, coordinate your tax strategies into an overall plan for 2018. This is a better approach than trying to cash in on tax breaks one at a time. Contact Dye and Whitcomb and we can help.

How to get a green light for commuting expense deductions

If you commute back and forth to work every day, you typically can’t deduct any of your travel costs, such as gas for your car or commuter fares. The IRS says these commuting expenses are nondeductible personal expenses. However, there are some special situations when your commuting costs may be deductible:

1. Business stops. It may be convenient to stop at a business client’s office on the way to work or going home. In this case, you can deduct the cost of the commute between the client’s location and your regular place of business.

2. Multiple business locations. Maybe you work for a company with separate branch offices or other business sites. If you drive between two or more business locations during the course of the day, the cost of the travel is deductible.

3. Long-distance travel. Normally, you may commute to a nearby workplace. But you might have to go to a distant business location for a few days, weeks or even months on occasion. As a result, you don’t go to your regular job site. The IRS allows you to deduct daily travel costs of this long-distance commute.

4. Temporary assignments. Finally, you might be required to work at a far-flung business location for a long stretch. To accommodate this work, you might stay near the job site in a hotel and return home on weekends. If the assignment lasts less than one year, you may deduct your meals and lodging expenses (subject to certain limits). Best of all, you can usually deduct the cost of your weekend trips home.

If you pay the commuting costs yourself, they are deducted as miscellaneous expenses on your personal return. The deduction for all miscellaneous expenses, including unreimbursed employee business expenses, is limited to the excess above 2 percent of your adjusted gross income (AGI). There are also potential commuter benefits available through your employer.

Contact Dye & Whitcomb if you have questions about deducting your commuting expenses.

Alimony or child support? A big tax difference

f you are divorced and have young children, there’s a good chance that you are paying or receiving alimony or child support (or both) under a divorce decree. What’s the difference? The distinction is important to the IRS.

Currently, alimony is deductible by the party who pays it and taxable to the party who receives it. Child support is neither deductible nor taxable.

Depending on what side of the fence you’re on, you should negotiate for payments to be characterized as either “alimony” or “child support” as part of a divorce agreement.

How to qualify for alimony deductions

Just saying that payments are alimony won’t suffice. According to the IRS, these are the requirements that must be met if you’re hoping to qualify for alimony deductions:

  • You don’t file a joint return with your ex-spouse
  • Payments are made in cash or an equivalent
  • Payments follow the instructions of a divorce or separation agreement
  • The agreement doesn’t designate the payment as not being alimony
  • You and your spouse aren’t members of the same household when the payment is made
  • There’s no liability for making the payment after your spouse dies

The following alimony payments aren’t considered deductible:

  • Non-cash property settlements in a lump-sum or installments
  • Payments that are a spouse’s part of community property income
  • Payments to keep up the property owned by the person paying alimony
  • Use of the property owned by the person paying alimony
  • Voluntary payments

The terms can often be worked out to the satisfaction of both parties. For instance, the deduction for alimony can be valuable to someone who pays alimony and earns more while the taxable income may not cause any dire consequences to someone who earns less.

According to the new tax bill, alimony will not be deductible or taxable starting in 2019. This may also affect divorce and separation agreements executed in 2018 and modified in 2019 and beyond.

Keep these rules in mind when your 2017 tax return is filed. The staff at Dye & Whitcomb can help you determine tax issues related to your alimony payments.