There is a lot of talk about tax reform in the news today. Proposals have been submitted, but as of this writing, nothing has been voted into law.
Here are my tax tips for tax year 2017:
1. Take advantage of the Earned Income Credit (EIC). This anti-poverty credit benefits working individuals and families with total income under $53,930. Here are the maximum amounts of the credit for 2017:
• $6,318 with three qualifying children
• $5,616 with two or more qualifying children
• $3,400 with one qualifying child
• $510 with no qualifying children
Basically, the EIC is a refundable credit. If the taxpayer has a tax liability, the EIC will reduce or eliminate the tax due. Once that tax liability is decreased to zero, the remaining amount of the credit is refunded to the tax payer.
2. Attempt to use Schedule A to maximize your deductions. Here are some items allowed with limitations: home mortgage interest, property taxes, state and local taxes, charitable donations, charitable mileage, medical expenses, gambling losses, job expenses, tax preparation fees and casualty losses.
3. Take the educational credits. The American Opportunity Credit is for the first four years of college, with a maximum credit of $2,500. The Life Time Learning Credit is not limited to the first four years of college and is worth up to $2,000. There is a third option called the tuition and fees adjustment to income. A form 1098-T is required from the educational institution.
4. Don’t miss dependent exemptions. A dependent exemption reduces your taxable income by $4,050 for tax year 2017. Many taxpayers do not realize that they may claim an exemption for someone who has lived in their home for the entire year. If this individual had no income or their earnings were less than $4,050 and you paid more than 50 percent of their support, you may claim them. Age and relationship is not a factor.
5. Don’t miss these deductions. Don’t forget about the $250 educator adjustment for teachers; IRA contributions of up to $5,500 with an additional $1,000 catch-up contribution if over 50; and child-care expenses.
6. The Affordable Care Act is still law. For the 2017 tax year the penalty for not having health care equals 2.5 percent of the taxpayer’s adjusted gross income or $695 per adult and $349.50 per child, up to a maximum of $2,085 whichever is higher.
Burgos is president of Burgos Income Tax Inc. in Rochester.