Changes to Know for Preparing This Year’s Tax Return
By Frank X. Mullen
Nevadans need to be aware that some of the changes from last year’s federal tax overhaul already are in effect for this year’s tax return, Nevada accountants say.
“Several provisions take effect this year, for the 2017 returns to be filed (this month),” says Ben McManus, a Reno-based senior tax advisor. “If you have a professional do your return they will be abreast of that, but people who file on their own may not be aware of the immediate changes.”
For example, taxpayers who want a deduction for large medical expenses previously were required to show the expenses exceeded 10 percent of their income to be eligible for the deduction. But under the tax bill that threshold is changed to 7.5 percent of adjusted gross income for the 2017 and 2018 tax years. In order to get that deduction, the taxpayer has to itemize on the IRS Schedule A, rather than take standard deductions on the short-form tax return, McManus says.
According to the Internal Revenue Service, about 25 percent of Americans itemize their deductions. In Nevada , about 20 percent do so. Tax experts say that the changes in the tax law – particularly the near doubling of standard deductions — will cause many people to abandon itemizing their tax returns.
The requirement that only taxpayers who itemize can take advantage of deductions for uninsured casualty losses – such as flood damage – also changed under the tax law. The new regulations say casualty losses that exceed $500 can be deducted if the loss was the result of a federally-declared disaster. At first, McManus says, that sounded like good news for Northern Nevadans whose properties were submerged by floods in January of last year, an event that got several Nevada counties, including Washoe and Lyon, declared federal disaster areas. But further research showed that the provision comes with tight restrictions.
“The bill applies only to the victims of Hurricane Harvey and to the people affected by the California wildfires,” he explains. “Those living in other federally-declared disaster areas, including Nevada ’s, are out of luck unless they itemize their deductions on a Form 1040 Schedule A.”
Expensing certain business property in the first year has been increased up to 100 percent for any property “acquired and placed into service” after Sept. 27, 2017. The tax bill also expanded the definition of “qualified property” to include qualified film, TV and live theater productions released after that date.
A big ticket item for some filers is the break for local taxes given to federal taxpayers. Under the tax bill, those local taxes starting in 2018 will be capped at $10,000. In states with their own income taxes, such as New York and California, that new floor for deductions can add up to a hefty tax increase.
Nevada has no state income tax, but the same $10,000 ceiling applies to people who itemized deductions and declare local sales and property taxes. In December, Washoe and Clark counties reported a surge in residents who wanted to pre-pay their 2018 property taxes before the limits in the new law took effect. But county treasurers wouldn’t take the payments.
“You can’t pay taxes that haven’t yet been levied,” said McManus. “That’s the problem. (Prepayment) sounded like a good idea, but you have to be billed before you can pay the bill, that’s the law.”
One change that affects employees this year is reductions in the amounts of withholding tax rates. That immediately puts more money in taxpayers’ pockets, but depending on the effect of the loss of sales tax deductions, some tax payers will have to pay more in taxes at the end of the year.
“That’s a much bigger issue in states with their own income taxes,” he says. “But people in Nevada who get paychecks and also depend on a big break for state sales taxes may want to check their new withholding amounts against how the tax bill will affect their deductions this year to avoid surprises.”