Color of Money: Start the new year looking at your taxes
If you've been putting off an expensive medical procedure, you may want to schedule some appointments in the coming year. For the 2017 and 2018 tax year, you can deduct out-of-pocket medical expenses that exceed 7.5 percent of your adjusted gross income, which is down from the current 10 percent. The lower threshold gets kicked back up to 10 percent for the 2019 tax year.
The 529 tax-advantaged college-savings vehicle -- whose earnings are free from federal and, often, state taxes -- also underwent a change. Money in these accounts under the old tax rules could only be used for qualified higher-education expenses.
Starting next year, account holders can use 529 funds -- up to $10,000 a year- to pay for tuition for elementary or secondary public, private, or religious school.
But you shouldn't just look at the tax benefits of using this money. Consider the consequences of pulling money out of a 529 account for K-12 education expenses. Will this decision drastically deplete the account, leaving the student substantially short of the cash needed for college?
"Taxpayers should start by reviewing their recent returns to see what deductions they took and how their taxes would change under the new legislation," said David Oransky, member of the American Institute of CPA's Personal Financial Planning Executive Committee. "With key itemized deductions now limited, many taxpayers who have itemized in the past will find themselves better off with the standard deduction going forward. While this may simplify their tax filing, it could also impact decisions regarding where they live, how expensive of a home they own, whether to pay down their mortgage, and the timing of charitable gifts."
Despite claims of simplicity, the Tax Cuts and Jobs Act is anything but simple. With all the changes, you'll need help from a tax professional or tax preparation software to make sure you're making the right decisions.
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