The clock is ticking down to the start of the new year, and there are some very last minute things you can do to save some additional tax dollars for 2017.
There was final guidance from the IRS regarding prepaying property taxes for a 2017 deduction. In a nutshell, only tax that has been assessed for payment in 2018 can be prepaid. For instance, I live in Cook County, Illinois, and my property taxes that are due March 1st, 2018, were assessed in 2017. The bill is available and I have paid the first installment online. But according to guidelines provided by the IRS, anything beyond what is assessed would not be deductible.
A couple of important points about this.
· There must be a bill available. Meaning, you must know what the tax is going to be, to the penny, and pay that amount in full. It cannot be a guess at how much it will be, or based on the previous year – the assessment must exist.
· Just because your county allows you to prepay your property tax bill, does not mean that the tax has been assessed.
· If you aren’t sure if the tax has been assessed, and it is available for online prepayment, think of this. If you expect that your property tax and state income tax will exceed $10,000 in 2018, even if you prepay, then there’s no harm in making that payment, because anything over the $10,000 in 2018 will not be deductible anyway.
Of course, as mentioned before, there’s the issue of AMT, which basically negates any benefit of prepayment.
There is likely still time to make that prepayment if you choose to do so. I know my county allows prepayments online up until tomorrow that will count as a 2017 payment.
How to maximize your unreimbursed job expenses (for employees, not self-employed). A good number of my clients are not reimbursed for their job expenses by their employers. Starting in 2018, unreimbursed job expenses that have historically been reported on Form 2106 and deducted on Schedule A as an itemized deduction, have been eliminated.
This is quite devastating for my flight crew, performing artist and sales clients, some of whom have major out of pocket expenses that are necessary for them to conduct business and/or do their jobs. Some of these expenses include:
· Travel expenses, including per diem
· Auto/mileage expenses
· Home office
· Office supplies/equipment
· Liability insurance
· Union dues and other professional fees and memberships
And the list goes on. For 2017, if there is anything you can think of to purchase or pay for before December 31st, 2017, DO IT! This is, again, important for those who normally have unreimbursed job expenses that they deduct on Schedule A of their tax returns, and does not include those who are Schedule C independent contractors.
What’s up with independent contractors, you ask. Well, these are folks (and quite a large portion of my clientele) who are not paid as employees. There are advantages and disadvantages to being an independent contractor (who can also be LLCs or S-Corp). Some of you have already contacted me about whether it is a good time to change from being an employee to being an independent contractor. Here are a couple of thoughts I have:
· You may not have that choice. There are rules dictating whether your company can treat you as an independent contractor or an employee, and sometimes they don’t have a choice in the matter. If you are serious about pursuing the independent contractor route (or becoming an LLC or S-Corp), you must first ask your employer if it is possible to begin with.
· If they say no, then it may be time to have a discussion about your expenses. If, in order to conduct your business, you must spend money out of pocket, the discussion should be about how the company needs to take a more active role in reimbursing you properly.
· If they say yes, then we will need to discuss what it means to be an independent contractor/LLC/S-Corp. We may not be able to have this discussion until after tax season. But, you can certainly start the year as an independent contractor, and we can discuss afterwards if an LLC or S-Corp makes sense, and then set it up retroactively to January 1st, 2018. I will be setting up appointments right after tax season to facilitate any changes such as this.
That’s all for now. Please be on the lookout for more posts in the coming weeks, up until January 15th when Taxlink officially starts tax season. Have a safe and Happy New Year’s eve, and we will talk to you next year!