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Tax law changes update, part 1: medical expense deductions

Preparing for another tax-filing season typically involves several steps.

One of them is assembling the documents you need, such as W-2s or statements of mortgage interest paid. Selecting a tax preparer, or touching base with a preparer you've already used, is another step for many people. Indeed, making contact with a tax preparer is something a majority of taxpayers do.

There is also another step, however, that comes with the yearly income tax ritual. That step is to familiarize yourself with changes in tax law. In this two-part post, we will discuss some of those changes.

Of course, some people follow tax law changes more closely than others. Many taxpayers make sure to keep abreast of such changes and try to take them into account when making strategic money-management decisions. Others are more inclined to let the changes unfold and review them on an annual basis.

This year, a change that is likely to affect many taxpayers concerns tax deductions for medical expenses. There has been a change in the expense threshold for which this deduction is allowed.

In the past, the tax deduction for medical expenses applied when those expenses amounted to 7.5 percent of a taxpayer's income. This year, the threshold has been changed to 10 percent.

This means that the tax deduction for medical expenses will be available to more taxpayers.

There are other tax law changes this year, as well. For many upper-income people, for example, the expiration of Bush-era tax cuts is likely to result in an increase in their federal tax bills.

In part two of this post, we will discuss other changes, such as the treatment of forgiven debt from mortgage foreclosures and short sales.

Source: U.S. News & World Report, " 6 Critical Changes to Note When Filing Your 2013 Taxes," Teresa Mears, Jan. 21, 2014

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