The Tax Cuts and Jobs Act passed by the House and Senate this week widens current tax brackets and almost doubles the standard deduction, but also limits or repeals some itemized deductions. Beginning in 2018, the Act increases the standard deduction to $24,000 for married-filing joint filers, $18,000 for head-of-household filers and $12,000 for all others. While the higher standard deduction will benefit some taxpayers; others who currently itemize will see a significant drop in their itemized deductions with the $10,000 limitation on state and local income taxes, and repeal of two percent miscellaneous itemized deductions, which include unreimbursed employee business expenses, investment management expenses and tax preparation fees.
Taxpayers with low or no mortgage balances are likely candidates to use the higher standard deduction going forward. Taxpayers who currently itemize but believe they may benefit from the higher standard deduction in the future should consider accelerating charitable donations, medical expenses (if in excess of 7.5% of AGI), state tax payments (see e-alert from December 20) and miscellaneous deductions (if in excess of 2% of AGI) into 2017. Mortgage interest payments for amounts accrued by 12/31/17 can also be accelerated.
Before accelerating deductions into 2017, taxpayers should consider the overall impact especially if they are currently or will be subject to the Alternative Minimum Tax as a result of the acceleration.
For more information, contact your professional at UHY LLP in one of our many locations.