5 Questions for 2017 Year-End Tax Planning

by Mitchell J. Smilowitz, CPA

2017 will end in a heartbeat.  Thanksgiving.  Hanukkah. Then 2018 begins.

Now is the time to spend a few minutes thinking about some last minute actions you can take to lower your 2017 taxes.  Are you claiming all of the deductions for which you are eligible?  Answer these 5 questions and you will be well on your way.

Have You Maximized Your Retirement Contribution?

Search the Internet for tips on reducing taxes and the first item in most lists is to put as much money aside for retirement as allowed by the IRS. Retirement account contributions are a top tax-reduction tool because they serve two purposes.

First, contributions to your JRB 403(b) retirement account lower your taxable income and, therefore, lower the amount of taxes you pay. If you're in the 25% tax bracket and contribute an additional $1,000 before the end of the year, you can cut your tax bill by $250. The contribution likely will lower your state income tax payment, too.

Second, earnings in your JRB account grow tax-free until withdrawn. If you start early, this strategy can offer a powerful boost to your retirement savings.

To make additional contributions to your JRB retirement account, please speak with your employer.

What’s the Most You Can Contribute in 2017?

  • Salary Reduction Contribution -- $18,000 (The maximum pre-tax contribution you can make to your JRB retirement account.)
  • 50+ Catch-Up Contribution -- $6,000 (The maximum additional pre-tax contribution those 50-years-old and up can make to their JRB retirement account.)

For Clergy: Have You Maximized Your Housing Allowance?

If your actual housing expenses are greater than the amount approved by your synagogue but less than the fair market rental value of your furnished home, plus utilities, you may be able to increase your housing allowance declaration. Ask your Board to approve a resolution raising the designated housing allowance if the increase can be substantiated. But remember, the housing allowance can only be claimed prospectively. In other words, you can only increase the deduction for housing expenses incurred between approval of the resolution and the end of the year.

Retired clergy can potentially claim up to 100% of the distribution from their JRB account as a housing allowance. If you are retired and have not yet taken a distribution from your JRB account equal to your housing allowance, contact the JRB at 888-JRB-FREE (572-3733) or staff@jrbcj.org to see if it makes sense for you to take a distribution before the end of the calendar year.

Have You Maximized Contributions to a Health Savings Account?

If you or your spouse have a high-deductible medical plan, you can create a Health Savings Account (HSA) to pay for medical expenses. Contributions to an HSA are made with pre-tax dollars. Withdrawals used for medical expenses are not taxed. Unused money contributed to an HSA accumulates and grows tax-free (similar to the assets in a retirement account). Contribution limits for HSAs in 2017 are $3,400 for individuals and $6,750 for families. Those 55 or older can contribute an additional $1,000. For more information on HSAs, please see IRS Publication 969.

Have You Maximized Your Child and Dependent Care Deductions?

Federal tax law allows at least three options for deducting child and dependent care expenses from your taxable income.

  • The Child and Dependent Care Tax Credit allows a deduction for child care expenses for your child or other dependent (such as a parent) incurred while you were working or job hunting.  Depending on your income, you can deduct from 20%-35% of the cost of allowable expenses up to $3,000 for one dependent ($6,000 for two or more). For more information, please see the IRS fact sheet on the Child and Dependent Care Tax Credit.
  • Depending on your income, you may also be eligible for the Child Tax Credit. The Child Tax Credit is $1,000 per child age 16 or younger.  In 2017, the maximum income to claim the full Child Tax Credit is $110,000 for married couples filing jointly, $55,000 for married couples filing separately and $75,000 for single head of household taxpayer. For more information, please see the IRS FAQ on the topic.
  • If you contribute to a Dependent Care Flexible Spending Account with your employer, make sure you use the funds remaining in it. Flexible spending accounts are generally use-it-or-lose-it plans; money remaining in the account cannot be carried over. You can use the money in your 2017 FSA to pay for dependent care expenses incurred through March 15, 2018. These claims must be submitted by April 30, 2018. Eligible expenses include preschool, summer day camp, before- and after-school programs and child or adult daycare. For more information on FSAs, please see IRS Publication 969.

Have You Itemized All of Your Miscellaneous Deductions?

Taxpayers can deduct several kinds of unreimbursed expenses – such as work-related travel (including auto expenses), job hunting costs, dues to professional organizations and work-related clothing – if your total itemized deductions during the tax year exceed the standard deduction and your miscellaneous deductions are greater than 2% of your adjusted gross income. This IRS Fact Sheet provides more detail on these deductions, but you will also want to speak with your tax preparer.

There are other deductions you may be able to take to reduce the income taxes you pay – state and local taxes, mortgage interest deductions and charitable contributions, for example. These deductions can make a big difference in lowering your 2017 federal, and often state, tax liability.