The Opportunity
As you consider ways to reduce your federal, state and local tax liability, be sure you don’t overlook prepaid expensing. Prepaid expenses cover any payments your business is making for goods and services to be received in the near future, such as prepaid insurance and prepaid maintenance agreements. Unlike accrued expenses, your business will receive the benefits of your payment in a later period. For accrual basis taxpayers, this means that the tax deduction for prepaid expenses won’t be available until after the cash has been expended.
In the past, it was difficult to qualify for medical expense deductions. Now, some pundits would say that it is “nearly impossible.” Based on tax law changes that took effect in 2013, most taxpayers can deduct only unreimbursed expenses in excess of 10% of their adjusted gross income (AGI), up from 7.5% of AGI under prior law. For taxpayers who are aged 65 or older, the threshold remains at 7.5% of AGI, but only through 2016.
