The introduction of the Tax Cuts and Jobs Act at the end of last year represents major changes to the tax code, but its impact won’t be felt on your tax return until next year. That’s why as you get ready to file your freelance taxes this year, it’s smart to focus on taking full advantage of the tax deductions and exemptions that will disappear or change after your 2017 tax return is filed. Here are some of the key deductions that you should grab before they are gone:
- Personal exemptions. The new tax reform law offers an increase in the standard deduction on your 2018 tax return. However, it also represents a trade-off for the $4,050 in potential personal and dependency exemptions that will not be available after this year. Be sure to claim these exemptions on your return to lower your taxable income, if you can.
- Unlimited state and local tax deductions. On next year’s tax return you will only be able to claim $10,000 in deductions for state and local taxes. In 2017 there was no cap on these deductions, so now is the time to ensure you maximize every eligible penny on your tax return.
- A mortgage interest deduction of debt up to $1 million. After this year the ability to deduct the interest on up to $1 million in mortgage debt will be gone—another deduction that you should definitely take advantage of this year if you qualify. Next year this deduction will be capped at $750,000.
- Unrestricted deductions for home equity loan interest. If you have a home equity line of credit that you pay interest on, beware that your 2017 return is the last one on which you can deduct the interest you have paid on your loan, unless the money you borrow is used for home improvements. In addition, keep in mind that on next year’s return you will only be able to deduct interest on the combined total of your primary mortgage and home equity loan up to $750,000.
- Deductions for unreimbursed employee expenses. If you freelance and are also employed (i.e. you received a W-2 this year) be sure to deduct any unreimbursed purchases related to your job if the total exceeds 2 percent of your 2017 adjusted gross income. This is a deduction that will disappear after this tax season.
- Other popular itemized deductions. In addition to the unreimbursed work expenses mentioned above, freelancers should also take advantage of these deductions that are being eliminated after this year:
- Unreimbursed qualified employee education expenses
- Tax preparation and investment services fees,
- Professional dues
These are just some of the miscellaneous deductions that are being eliminated. Consider talking to a tax professional to see if there are others that you may qualify for. To be deductible, the total amount of these miscellaneous expenses must exceed 2 percent of your adjusted gross income.
- Moving expense deductions. If you relocated for work in 2017, you may be able to deduct the related expenses if they qualify under the IRS guidelines. If you are planning to move this year, or sometime in the future, you will be out of luck because this deduction will have been eliminated (except for armed forces members).
- Unrestricted deductions for expenses related to natural disasters. 2017 was a crazy and devastating weather year in some parts of the country. If you were impacted by a hurricane, wildfire or flood in 2017, you may be able to deduct some of the losses you incurred related to the weather event that were not covered by insurance or another relief program on this year’s taxes. For 2018 this deduction is only available if you reside in a presidentially designated disaster zone.
- Alimony payment deductions. If you are considering the financial factors involved in a divorce, take note of the impending change in the tax laws related to alimony. For the 2017 tax year and until the end of this year (2018) you can have a provision in your alimony agreement allowing the person making payments to deduct them from their federal taxes. However, for any divorce after December 31, 2018 this deduction will no longer be available.
As you can see, there are quite a few deductions and exemptions that are being eliminated or modified starting in the current year. As such, spending a little extra time to see if you qualify for them will pay off when you file your return. Plus, no matter what year you are filing your taxes in, it’s always a good idea to double check with a tax professional to make sure you aren’t overlooking any measures that can help lower your tax obligation and boost any potential refund you may receive.