Head of household will likely be eliminated. You are now either single or married.
Personal exemptions are likely eliminated. You will not get the $4,000 ($4,050 for 2016) exemption for yourself or your dependents. Larger families with several dependent children are likely to be adversely affected while empty-nester couples could be positively impacted.
Big one if you work for an employer that has a retirement plan like a 401(k). Pre-tax 401(k), 457(b) or 403(b) contributions reduce your taxable wages. Since the tax rates are anticipated to be lower next year, you would benefit from additional contributions to your retirement plans this year if you expect to make about the same amount in 2017 as 2016.
Owners of small businesses who file a Schedule C have a wide array of deductions, including buying equipment, supplies, and paying for other deductible expenses. There are limits, so you can’t buy two years’ worth of supplies, but in general you can prepay up to one year of certain expenses, like insurance, and deduct the entire amount, especially if you are on the cash basis.
Harvest your losses in your taxable investment accounts. Next year, the anticipated capital gains rate is either the same or lower than 2016, and you can deduct up to $3,000 per year of capital losses, net of capital gains. While you are at it, beware of buying a mutual fund in a taxable account that has a capital gain built in. You can be buying a tax liability.
Roth IRA conversions can still make sense, based on your 2017 projected brackets. Converting to a Roth before the end of 2016 will create taxable income, but you have until 10/15/2017 to ‘recharacterize’ the conversion, or take a Mulligan and reverse the Roth conversion.
Rental expenses are deductible above the line, but beware the passive income limitations if they put you in a loss. Making repairs or paying expenses, including property taxes or insurance can make sense if you have net income from rentals. If you have a pass-through entity, like an LLC or S-corporation, it may make sense to accelerate business expenses and defer income.
Cash-basis farmers have an opportunity to shift income to a potentially lower tax rate by accelerating expenses into 2016 and deferring income to 2017. Conservation expenses, equipment purchases, fertilizers, fuel, insurance, seeds and plants, supplies, veterinary bills and taxes can all be considered.
Educator expenses up to $250 are deductible. If you are a teacher, paraprofessional or other qualified educator be sure to use this.
Health Savings Accounts (HSAs) can be a Heckofa Savings Account. You deduct funds paid into a HSA and can take withdrawals at any time (even in later years) tax-free for qualified medical expenses.
SEP, SIMPLE and Qualified Plans include self-employed 401(k) plans. If you have self-employment income you can deduct a significant amount from your income (depending on your income and age, up to $53,000 or $59,000). To set up a self-employed 401(k), you must establish the plan by 12/31/16. You have until the extended due date of your 2016 return to actually fund your retirement account but you can deduct the contribution from your 2016 income.
If you have net income from self-employment (from a Schedule C or from a pass-through entity), you may be able to deduct health insurance premiums (including Medicare premiums) paid for you, your spouse, dependents and under-age-27 children
Student Loan interest deductions may go away, since the new proposal only talks about deducting mortgage interest. Make sure to utilize this deduction if you have student loans.
The deduction for qualified tuition and fees may go away under new laws. Being sure to deduct the tuition in 2016 is a benefit.
This is a big change. Itemized deductions might be limited to mortgage interest and charitable donations and might have a cap of $100,000 if you are single and $200,000 if you are married. The standard deduction may increase to $15,000 if you are single and $30,000 if you are married.
Under the proposed law, the reduction in taxable income for personal exemptions will be gone.
Tax will be simpler to compute, with only 3 brackets down from 7 and reducing the current maximum tax rate of 39.6% to 33%.
If you have an entry on this line, you can be pleased to know that the proposal calls for the elimination of the Alternative Minimum Tax (AMT).
We can’t tell if the new proposal will eliminate the Foreign tax credit (there is a change in the business taxes on foreign income), but keep an eye on your brokerage statements and be sure to use the credit.
The child care credit will likely be replaced with an above-the-line deduction for child and elder care, especially benefitting working families utilizing day care.
As with tuition expenses, take advantage of any college credits for yourself or dependent children. They may be eliminated.
No indications on this credit, but it may be eliminated and another good reason to fund your 401(k), especially if you are making under about $61,000 (married) or $30,500 (single).
Like line 49 above, this child tax credit will likely be eliminated and replaced with a deduction for child care expenses.
No word on the elimination of these, but credits are a direct reduction of tax. You can get a credit of 10% of the cost up to $500 on items such as high-efficiency furnaces, air conditioners, biomass stoves, heat pumps, boilers, fans, insulation, roofs, water heaters and windows, doors, and skylights for your principal residence. Solar systems are eligible for a 30% credit.
If the Affordable Care Act (Obamacare) is eliminated, there will not be a Health care tax.
The proposals call for the elimination of the 3.8% Net Investment Income Tax and the additional 0.9% Medicare tax on high-wage earners.
The Earned Income Credit may be enhanced under current proposals.
It appears that medical deductions will not be allowed under the new proposals. This means that for 2016, if you have significant medical expenses, more than 10% of AGI if you are under 65 or more than 7.5% of AGI if you are 65 or older, you can increase deductions by ‘lumping’ your medical expenses and incurring additional medical expenses in 2016. This might mean buying eyeglasses or contact lenses, prescriptions you know you will need, or elective items like dentistry. Note that you can pay with a credit card, and the treatment must have at least started.
The deduction for state income taxes is anticipated to disappear. This means that 2016 may be the last year in which you can deduct your state income taxes. If you typically owe state taxes, paying an estimate before year-end would give you a deduction that you might not otherwise be able to use. If you overpay, you will have to pay tax on the refund in 2017. Be careful if you are subject to Alternative Minimum Tax (line 45 on the 1040). If you are subject to AMT, paying extra on state taxes doesn’t help.
Real estate taxes are deductible. Many homeowners receive a winter tax bill that is due sometime in 2017. Given that the deduction for real estate taxes may forever disappear, ‘lumping’ your property taxes can be very helpful. Be careful if you are subject to Alternative Minimum Tax (line 45 on the 1040). If you are subject to AMT, paying extra on property taxes doesn’t help.
These are taxes based on the value of your property, like car license fees based on a car’s value. Since the deduction for taxes may disappear, pay these now if you can. Be careful if you are subject to Alternative Minimum Tax (line 45 on the 1040). If you are subject to AMT, paying extra on personal property taxes doesn’t help.
Charitable contributions are deductible in 2016 and will likely still be deductible, subject to new limitations. However, you may be in a lower bracket in 2017, so the deduction may save more now. You can also donate to a Donor Advised Fund (DAF), which lets you make a contribution now and indicate the charities later. Line 16 is for cash or check contributions.
Noncash contributions can be things like personal property (like clothes or books or whatever) and appreciated property (like stocks or mutual funds). Both make sense, and giving appreciated property can cut income taxes and avoid the capital gain tax on the appreciated property. Given the standard deduction may be going up and the tax brackets may be going down, a 2016 charitable contribution can provide a larger benefit today than next year.
These may be eliminated. You can deduct casualty or theft losses if the amount of the losses, net of insurance proceeds, exceed 10% of Adjusted Gross Income.
This is part of a cadre of miscellaneous itemized deductions. Line 21 is for employee business expenses, like union dues, or job education. Public safety officers like police and fire may have special deductions. Miscellaneous itemized deductions are subject to a floor of 2% of Adjusted Gross Income.
Tax preparation fees are deductible if they, plus other miscellaneous itemized deductions, exceed 2% of Adjusted Gross Income. This may be eliminated.
This line, which may be eliminated, would include investment fees and expenses, safe deposit box, and certain legal and accountings fees relating to production of income (like tax planning).
This line, which may be eliminated, includes gambling losses to the extent of gambling income, and certain kinds of casualty and theft losses on business property.
This is the limitation on itemized deductions. Itemized deductions are reduced if your Adjusted Gross Income is over a certain amount. For 2017 the limitation is proposed to be $100,000 for single and $200,000 for married, a lower threshold than for 2016.