LAS VEGAS – Relatively new changes in tax law that went into effect in 2013 will again cause many taxpayers to lose certain itemized deductions. But some simple steps can help Nevadans ensure they get the best possible deductions.
For example, people who itemize on their form 1040 will lose itemized deductions for medical expenses if those expenses do not exceed 10 percent (7.5% if 65 or older) of their adjusted gross income, which is the amount that results from subtracting qualified adjustments from gross income and is the figure used by the Internal Revenue Service to determine tax benefits.
If those expenses are close to that 10 percent of adjusted gross income, taxpayers can “bunch” their medical expenses, such as planning to purchase eyeglasses or prescriptions on or before Dec. 31 to meet that requirement, rather than waiting until January. The basic idea is that if you are close to meeting the 10 percent threshold, pull those expenses into 2014. Remember that if you pay medical expenses with a credit card in 2014, even though the credit card bill may not be paid until 2015, the cost is still deductible in 2014.
Similarly, in 2013 a new limitation on other itemized deductions became effective. This limitation can result in the loss of up to 80% of itemized deductions if your adjusted gross income exceeds certain thresholds. Similar to bunching medical expenses, it may make sense to accelerate planned charitable contributions into 2014. The same rule applies when making the charitable contributions with a credit card in 2014 even thought the bill isn’t paid until 2015. This means that in theory, even though you get the deduction in 2014, you are not actually out of pocket until 2015.
More generally, it’s always good practice to review investment portfolios to make savvy adjustments ahead of tax time. Taxpayers who have capital gains for 2014, for example, should examine their portfolios for stocks that have lost value, and then sell those stocks. Those losses can offset or even eliminate taxable gains.
While the above strategies could be helpful for most taxpayers, they may not be helpful for everyone. It is always a good idea to review your tax situation with a professional.
Chris Wilcox is the tax partner at JJW, a leading financial consulting company focused on serving the business community in Las Vegas and the surrounding area. For more information, call (702) 304-0404.