Individual Tax Deductions

Transcription

1 Individual Tax Deductions What you need to know for 2017 filings. A review of the most often used deductions for individuals, including which ones ARE (temporarily) going away.

2 Disclaimer Presentations, newsletters and related materials provide general information regarding particular subjects and are not intended to constitute legal or tax advice. Registering for a presentation only constitutes an agreement to attend the presentation, not a contract for legal or tax advice and does not establish an attorney-client relationship. By participating in a presentation, you are not and do not become a client of Vogelman, Turner & Wright, PC. Rather, entering into an attorney-client relationship is a mutual agreement, requiring the exchange of information and the execution of an engagement letter between the client and our firm. If you are interested in retaining Vogelman, Turner & Wright, PC as your counsel, please contact me directly to schedule a meeting with one of our attorneys.

3 Tax Formula 1. Gross Income (wages, investment income, business income, etc.) 2. Less Adjustments to Gross Income 3. Equals Adjusted Gross Income (AGI) 4. Less Deductions (either the Standard Deduction or Itemized Deduction, whichever is larger) 5. Less Personal Exemptions (eliminated 2018 through 2025) 6. Equals Taxable Income 7. Calculate Tax (use the rate tables) 8. Add Alternative Minimum Tax (AMT) if applicable 9. Less Credits (education, child tax credit, foreign tax credit, dependent care expenses) 10. Plus Other Taxes 11. Less Payments (withholding, estimates, and other credits) 12. Equals Tax Owed/Refunded on April 15th

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5 Deductions

6 2017 Deductions Your Choice: Itemized or Standard but not Both Standard Deduction Filing Status Standard Deduction Single $6,350 HOH $9,350 MFJ $12,700 Surviving Spouse $12,700 MFS $6,350 Addition for Age or Blind $1,250-$1,550 Itemized Deduction Medical Expenses State and Local Tax Interest You Paid Gifts to Charity Casualty and Theft Losses Job Expenses and Other Miscellaneous Deductions

7 Medical Taxes Interest Charity Job and Other

8 Medical Expenses Medical Expenses, to be deductible, must be paid for medical care of the taxpayer, spouse, or a dependent of the taxpayer and not be compensated by insurance or otherwise. How Does the Deduction Work? Example: AGI - $100,000 AGI Floor - 7.5% Medical Expenses - $10,000 Allowed Deduction = $10,000 minus $7,500 (7.5% x $100,000) equals $2,500. Medical Care includes payments for the diagnosis, cure, mitigation, treatment, or prevention of disease, or for the purpose of affecting any structure or function of the body. Payments for medical care include payments made for transportation primarily for and essential to medical care.

9 Records to Keep Gifts to Charity $250 or more require an acknowledgement from the Charity Cash Contributions Bank record, receipt from the charity, or payroll deduction record, like W2 or pay stub Noncash Contributions Name and address of charity Date and location of contribution Description of the property Fair Market Value of property and how you figured FMV Your cost or basis in the contributed property Out-of-Pocket Expenses Records to prove amount of expense If unreimbursed expenses are $250 or more get written acknowledgement from charity. Car expenses for giving services to the charity. Standard Mileage rate is $0.17 cents per mile.

10 Miscellaneous Deductions (2017 is the last year until 2026) Deductions subject to 2% of AGI limit Unreimbursed Employee Expenses Safety equipment, small tools, and supplies needed for your job Uniforms required by employer that are not suitable for ordinary wear (the name tag test). Dues to professional organizations and subscriptions to professional journals Tax preparation fees Expenses for the production of taxable income

11 Tax Reform Act Effective 2018 Revised tax rate tables that lower the tax rates for 2018 through Personal Exemptions eliminated for tax years 2018 through Standard Deduction increased to $12,000 for single filers and $24,000 for married filing jointly. Medical Expense Deduction floor lowers to 7.5% of AGI for tax year 2017 and After that it reverts to 10% of AGI. Mortgage Interest Deduction limited to $750,000 of acquisition debt for tax years 2018 through The $1,000,000 limitation remains for older debt. Mortgage Interest Deduction for Home Equity Debt suspended for tax years 2018 through Child Tax Credit increased to $2,000 per qualifying child. Provision effective tax years 2018 through 2025.

12 Virginia State Deductions The starting point for calculating your Virginia state income tax is AGI from your federal return. Plus Additions Less Subtractions Equals Virginia AGI Less Virginia Itemized Deductions or the Virginia Standard Deduction Less other Virginia Deductions Equals Virginia Taxable Income

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14 Virginia State Tax Tips (just a few) Virginia itemized or standard deduction? The decision is made on the federal return. If you claim itemized deductions on your federal return, you must itemize on your Virginia return. If you claim the standard deduction on your federal return, you must also claim the standard deduction on your Virginia return. Other Deductions Child and Dependent Care Expenses Virginia college savings plan Long-term health care premiums Charitable mileage difference between $0.18 and the deduction on the federal return Prepaid funeral, medical, or dental insurance premiums

15 Additional Resources IRS Tax Topic Number 500 Itemized Deductions IRS Publication 529 Miscellaneous Deductions IRS Publication 502 Medical and Dental Expenses IRS Publication 526 Charitable Contributions IRS Tax Map Alexandria Law Library located on the lower level of the City of Alexandria Courthouse at 520 King Street

16 About G. Christopher Wright, Attorney & CPA 124 S Royal Street Alexandria, VA Tel: cwright@vtwlaw.com Web: