Do This One Thing Before the End of the Year to Save Money on Your Taxes
With Thanksgiving behind us, the end of the year will be here before you know it. This is a busy time of year for all with celebrations, shopping and spending time with loved ones. It is also a good time to review your income and expenses for the year and meet with your CPA for a tax review. If you need help, give your Portfolio Manager a call and we can assist you with setting up a tax planning meeting. Today's article talks about some end of year tax planning strategies. This may or may not be available to you depending on your financial situation.
Aliz Langone, MONEY magazine
This is the last year you can deduct medical expenses that exceed 7.5% of your adjusted gross income. Next year, the threshold will rise to 10% for adults of all ages, so now's the time to decide whether you want to take advantage of the lower hurdle while you can.
“This is definitely the year to bunch medical expenses,” Lisa Greene-Lewis, CPA and TurboTax expert, tells MONEY. “Starting with your 2019 taxes the threshold will go up to 10%, so you really want to try to maximize them this year.”
That means scheduling medical appointments before the end of the year to bump your out-of-pocket expenses over the line.
Nearly 9 million Americans deducted medical expenses in 2015, and nearly three-quarters of them were older than 50, according to an analysis by the AARP Public Policy Institute. Medicare beneficiaries in particular benefit from this deduction, since they spend on average $5,680 annually on health expenses that Medicare doesn’t cover, according to AARP estimates. Adults ages 65 and over have long used the 7.5% threshold (the Tax Cuts and Jobs Act of last year temporarily extended it to all adults for 2017 and 2018), so for older adults the jump up to 10% represents a big change for 2019.
In order to write-off qualifying medical expenses, you need to itemize your deductions, rather than take the standard deduction (this term refers to the fixed chunk of money that the IRS allows you to deduct from your income before you pay taxes on the remainder). The math behind this decision changes this year, due to the new tax law.
The law increased the standard deduction for 2018 and beyond to $12,000 for single fliers and $24,000 for married filing jointly. In order for it to make sense for you to itemize, the total of your qualifying deductions must exceed this amount. Last week, the IRS released tips for taxpayers who want to get a jump on their 2018 taxes, including guidance on the new deductions.
Despite the standard deduction doubling from last year's levels, there are still plenty of ways taxpayers with significant health care spending can qualify to itemize this year's medical expenses. Some are obvious- if you have doctors appointments you've been putting off, try to squeeze them in before the end of the year.
But it's not just doctor's visits. Dentist and eye doctors count, too. Costly items you may not have thought about, like implants and hearing aids, are deductible, so double check the IRS list of eligible medical expenses against your insurance coverage to figure out your out-of-pocket outlay for these items. Medicare doesn't cover hearing aids or routine dental work. If you need new glasses, get them for yourself as an early holiday gift. Another way to boost your spending is to stock up on contact lenses.
Also, look beyond these everyday expenses, says Greene-Lewis. For example, weight loss programs, if authorized by a doctor, can count as valid medical expenses in certain situations- and even related travel may qualify. "If you went to a specific seminar to learn about a disease or even just a doctor's appointment, don't forget your mileage could be deductible," says Greene-Lewis.
Home improvements are another area many retirees may overlook. If your doctor authorized changes to your home, like a wheelchair ramp, or even a swimming pool for certain conditions, you may be able to deduct those costs as well. Seeing eye dogs can be deductible, she says.
One caveat: if you've been relatively healthy this year and haven't spent much on medical expenses so far, you may want to consider not bunching your expenses. It could be worth holding off on your appointments until January to set yourself up to itemize your taxes next year. Since the threshold for medical deductions is going back up to 10%, you'll need to incur more expenses in order to itemize.