Tax and Financial Planning Calendar for December 2017

Month Income Taxes Saving and Investing
  • 4th quarter state estimates should be paid by 12/31 for people who itemize their deductions and won’t be hit by the AMT.
  • Keogh plans and Solo 401(k)’s must be established by 12/31.
  • 529 Plans must be funded by 12/31 to take full advantage of this year’s gift limit of $14,000.
  • Last chance to maximize annual contributions to your 401(k) or 403(b) plan of up to $18,000, ($24,000 if 50 or older).

2017 & 2018 Tax Facts

  • For 2017, the standard deduction for a single individual is $6,350 and for a married couple is $12,700. A person will benefit by itemizing once allowable deductions exceed the applicable standard deduction. Itemized deductions include state and local income taxes (or sales taxes), real estate taxes, mortgage interest, charitable contributions, and unreimbursed employee business expenses.
  • For 2017, the personal exemption is $4,050. Individuals will claim a personal deduction for themselves, their spouse, and their dependents.
  • The?maximum earnings subject to?social security taxes is $127,200 for 2017, increasing to $128,700 in 2018.
  • The?standard mileage rate?is $.535 per business mile?as of January 1, 2017, down from $.54 for 2016 and $.575 for 2015.
  • The?maximum annual salary deferral?into a?401(k) plan?or a?403(b) plan?is $18,000 in 2015, 2016 and 2017, increasing to $18,500 in 2018.? And if you’ll be 50 or older by December 31st, you can contribute an extra $6,000 into your 401(k) or 403(b) account this year.

The?maximum annual contribution?to your?IRA?is?$5,500 for 2015 through 2018.? And if you turn 50 by December 31st, you can contribute an extra $1,000 that year.? You have until April 15, 2018 to make your 2017 IRA contributions.

New Rules for Massachusetts Employers

Updates in MA Employer Health Care Contributions for 2018 and 2019?will affect only employers with more than 5 employees.

There are two separate parts on the increase for this: The Employer Medical Assistance?Contribution?(EMAC) and The Employer Medical Assistance?Supplement

  • The Employer Medical Assistance Contribution (EMAC) – EMAC is not new.? If an employer has more than 5 employees, then they already have been paying EMAC.? The rate will increase from a potential maximum cost of $51 per employee per year to a potential maximum cost of $77 per employee per year.
  • The Employer Medical Assistance Supplement – This temporary supplement is new for 2018 and 2019?and?applies to employers with more than five employees in Massachusetts whose non-disabled employees obtain health insurance either from MassHealth (excluding the premium assistance program) or subsidized coverage through the Massachusetts ConnectorCare program. The contribution is 5% of annual wages for each non-disabled employee, up to the annual wage cap of $15,000, for a maximum of $750 per affected employee per year. The contributions collected will help offset the Commonwealth’s cost of providing health insurance to your employees. This supplemental contribution only applies to those employees on state-subsidized coverage.

Both?the Employer Medical Assistance?Contribution?(EMAC) and The Employer Medical Assistance?Supplement?will be calculated and paid each quarter in connection with filing with the MA DUA to report wages and pay the quarterly unemployment taxes for your practice.

Don’t Overlook The Simplified Home Office Deduction

Every once in a while, the IRS surprises us and makes our lives easier. This is definitely the case when the IRS introduced the Simplified Home Office Deduction back in 2013.

This simplified deduction is still based on the square footage of your home office. All you need to do now, however, is multiply the square footage of your home office by $5 per square foot, and that’s the deduction you’ll claim for the home office that year.

If you are a homeowner, you will then claim 100% of your mortgage interest and real estate taxes as an itemized deduction.? And by claiming the simplified home office, you no longer need to maintain depreciation schedules while you own the home, nor would you then pay taxes on depreciation claimed over the years when you sell the home.

Remember, the non-simplified method to calculate the home office deduction is to figure the percentage of the square footage of your home that is utilized regularly and exclusively as the home office.? Let’s say your home is 2,000 square feet and your office within the home is 200 square feet.? In this example, you’d deduct 10% of the following costs:

  • Mortgage interest and real estate taxes if you own the home
  • Rent paid if you are a tenant
  • Homeowners or renters insurance
  • Utilities (excluding phone and internet) – electric, gas, oil, and water
  • Repairs and Maintenance
  • Depreciation Expense if you are a homeowner, based on the percentage of the cost of the home plus improvements

Frankly, if you are a renter, definitely do the math as you you will probably be better off claiming the home office deduction based on the non-simplified calculations than claiming $5 per square foot.

Homeowners should still work through the math, but given the fact that you will deduct 100% of your mortgage interest and real estate taxes as an itemized deduction, and won’t have to deal with paying taxes on the deprecation expense claimed over the years when you sell the home, the simplified home office might be the way to go.

Please take a look at the Form 8829 or the Instructions to the Form 8829 for more info about the Home Office and Simplified Home Office Deductions.

Ten Tips to Cut Your 2017 Taxes

It’s not too late to cut your 2017 tax bill. Prior to December 31st:

  • Increase your 401(k) and 403(b) contributions if you haven’t been contributing at the maximum rate all year.? This year you can put up to $18,000 into your 401(k) or 403(b) plan at work.? Anyone 50 or older by December 31st can put away an additional $6,000.? Contributing to a 401(k) or 403(b) plan at work is one of the best tax shelters available to you during your working years.? (You might also start thinking about setting your 2018 retirement savings goals too.)
  • If you’re self-employed, consider setting up a Solo 401(k) by 12/31.? A Solo 401(k) plan lets a self-employed person hit the $54k retirement plan max with less income than a SEP IRA, and also allows a person aged 50 or older to put away $60k into a retirement plan for 2017 versus $54k into a SEP IRA.
  • Take a look at your withholdings and instruct your employer to withhold additional taxes to avoid getting hit with an underpayment penalty if you haven’t had enough taxes withheld during the year.? (Take a look at the IRS’ Withholding Calculator to set your withholdings for 2018.)
  • Consider selling your investments held in non-retirement accounts that have decreased in value since your capital losses can offset other capital gains realized during the year (including capital gain distributions from your mutual funds).? Excess losses can then be used to offset up to $3,000 of wages and other income.? Make sure to wait at least 31 days before buying back a security sold at a loss, or the IRS will disallow the loss under the “wash sale” rules.
  • Consider selling your investments held more than one year that have increased in value if you are in the two lowest tax brackets since the long-term capital gains rate for you will be 0%.? You can then buy back those securities, and the “cost-basis” will be the higher amount.? Wash sale rules don’t apply to securities sold at a gain.? This strategy will save you taxes down the road when you sell these securities.? Just make sure that the capital gains realized don’t push you out of the 15% tax bracket, or you’ll be taxed on those gains that fall outside that bracket at 15%.
  • Send in your January 2018 mortgage payment early enough so it will be processed prior to 12/31/17.? By sending in your payment a few weeks early, you can deduct the interest portion of that payment a full year earlier. This is especially important this year since one of the tax changes might be to limit the mortgage interest deduction.
  • Clean out your closets and donate your clothing and household items to a charitable organization, since “non-cash” contributions are deductible if you itemize.? Don’t forget to get a receipt.? And you should make a list of each item donated, along with its condition, and snap a few photos as well.? Remember, only donations of clothing and household items in “good condition or better” qualify for a deduction.
  • For gifts of money, making your donation by credit card before December 31st allows you to deduct the donation on this year’s return, even if you don’t pay your credit card bill until 2018.? And you always have the option of donating appreciated investments to charities. You get to claim your donation based on the value of the assets donated, without paying any capital gains taxes on the appreciation.? (Use this IRS tool to confirm a charity as legitimate.) Don’t donate investments that have decreased in value.? Instead, sell them first, take the loss on your taxes, and donate the money received from the sale.
  • Pre-pay your projected state tax shortfall if you’ll be itemizing your deductions and not subject to the alternative minimum tax.? Due to the higher tax rates enacted for 2014, there is a better chance that you won’t get hit by the AMT this year than prior to 2013.
  • Pre-pay and pay off your medical bills if your total medical expenses exceed 10% of your income and you itemize.? And with the medical expense deduction possibly being eliminated by the Trump tax law change, consider paying whatever medical expenses you can prior to 12/31/17 if your total expenses will exceed 10% of your income and you will itemize your deductions.

And, as always, evaluate whether you’ll save any taxes by postponing 2017 income or deductions into 2018 or by accelerating 2018 income or deductions into 2017.??

With the Trump tax changes seeming very possible, there is a very good chance that tax rates will decrease in 2018, while certain deductions such as medical expenses, state income taxes, and real estate taxes might be eliminated or reduced,? And the mortgage interest deduction might be capped based on a mortgage debt of just $500k, half of today’s cap of $1 million.? Please plan ahead accordingly