Grab These Tax Breaks Before They Disappear

Income tax reform and President Trump are not exactly my two favorite topics. However, understanding the impact on various income tax deductions and tax credits brought about by President Trump’s attempt to “make things better” vis-à-vis tax reform should not be ignored. One thing is for sure, the impact of Trump’s tax reform will almost certainly be “give and take.”

Although nothing is yet known for certain, some tax deductions and credits may be traded for lower overall rates in the reform plans of the Trump administration and the Republican congressional leadership.

For that reason, taxpayers may want to make the most of them now, recommends tax research and software provider Wolters Kluwer:

“With tax reform on the agenda for 2017, several tax deductions and credits might be sacrificed in order to lower tax rates, so make sure that you claim all of the tax breaks to which you are entitled before they disappear,” said Mark Luscombe, JD, LLM, CPA and principal federal tax analyst for Wolters Kluwer Tax.

Accounting Today has provided a comprehensive list of some of these must-have deductions and credits that Kluwers references. Again, it’s possible that Kluwers is wrong and these deductions and credits will not be “sacrificed” in future tax reform, but it’s always good to err on the safe side.

What follows is an abbreviated listing of the recommended deductions and credits:

Home Office Deduction

A simplified safe-harbor method for this deduction was introduced in 2013 for those who are self-employed and work out of their homes. It is based on the size of home office and is designed to be a simple calculation.

The simplified safe-harbor option saves time compared to the standard home office tax deduction calculation of figuring related expenses and how they are apportioned over the course of the year to a home office.

Home Mortgage Insurance Premium Deduction

It’s one of the more popular deductions that was extended through 2016 with passage of the PATH Act — allowing most homeowners to write off their home mortgage insurance premium as interest paid on a mortgage. 

Medicare Premium Deductions, Self-Employed

Business owners and self-employed taxpayers may deduct health insurance premiums. Those who are old enough to qualify for Medicare and are also business owners or self-employed may deduct premiums paid for Medicare Part B, Part D and supplemental Medicare policies to guard against health care coverage gaps. However, the deduction is not available for anyone who is already covered under their or their spouse’s employer’s health plan.

Child Tax Credit

The maximum child tax credit of $1,000 per child age 17 or younger is now permanent. For taxpayers with nominal tax liability, a portion of the child tax credit may be refundable. However, the amount of the credit may be less, depending on income level.

Child and Dependent Care Credit

This credit may be claimed by eligible taxpayers who paid work-related expenses for the care of a qualifying individual in order for an eligible taxpayer to be able to work or look for employment. It is a percentage of the amount paid to a care provider and depends on a taxpayer’s AGI. A dependent child must be under 13-years-old when care was provided to qualify.

Adoption Credit

The adoption credit was also made permanent in 2013 and it’s the largest nonrefundable tax credit available to individuals. Those claiming the credit on their income taxes must file Form 8839, Qualified Adoption Expenses. Documentation of qualified adoption expenses, including any adoption decree or court order, should be retained with copies of the tax return.

Earned Income Tax Credit

The EITC is a refundable federal tax credit aimed at helping low- and moderate-income workers keep more of their paychecks. It was enacted in 1975 to offset Social Security taxes for those who qualify and as an incentive for more people to join the workforce. When the EITC exceeds the amount of taxes to be paid, it can then generate a tax refund for eligible taxpayers who claim the credit.

The bottom-line is this: no one at this time knows for sure which deductions and credits will be affected by Trump’s tax reform. We recommend that you check with your tax preparer who should have a better perspective on your particular tax situation and can better assess the impact of these issues on your finances.