The Tax Cuts and Jobs act of 2017 signaled the largest tax reform in decades. The law includes numerous changes to both personal and corporate taxes. We discussed the most important changes relevant to you a few months ago in Five Changes to Be Aware of Under the 2018 Tax Reform.

 

One of the most promoted aspects of this plan was the doubling of the standard deduction to $24,000 for joint filers and $12,000 for single filers. While this may provide additional tax savings and simplify filing for some taxpayers, it also reduces the potential tax savings provided by certain expenses such as medical expenses, charitable donations, or home mortgage interest. As a result of these changes, certain tax strategies are more valuable than ever to make the most of your expenses.

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Health Savings Accounts

Medical expenses have always had a high threshold to meet before they will provide a tax benefit. Generally, medical expenses can only be deducted when they exceed 10% of your adjusted gross income(this was temporarily reduced to 7.5% for 2017 and 2018), and even then only the portion that exceeds that threshold can be deducted. This means that if you earn $100,000 and you have $12,000 in medical expenses you will only be able to deduct $2,000. With the increased standard deduction, you will have a harder time taking advantage of your medical expenses even when you manage to exceed the 10% threshold. The best way to bypass these heavy requirements for medical expenses is to set up a Health Savings Account. An HSA allows you to save up to $7,000 per year for medical expenses and deduct the full amount, without worrying about the 10% threshold or itemizing deductions. For more information on HSAs you can read Avoiding the 10% Threshold for Medical Expenses.