Deductions Lost or Reduced In 2018

Deductions Lost or Reduced In 2018

Friday, 18 January 2019 16:44

There are always tax law changes, and the Tax Cuts and Jobs Act, passed in December 2017, certainly created a lot of changes. I can’t say for certain because every taxpayer has a different set of circumstances, but I believe most taxpayers will see both tax simplification and some reduction in federal tax paid. But there may be some surprising changes you weren’t expecting.

There are some deductions that many taxpayers have used for years that were reduced or eliminated by the law. The biggest could be the elimination of Personal Exemptions. In prior years, you reduced your Adjusted Gross Income (AGI) by either the Standard Deduction or your total allowable Itemized Deductions, then further reduced your AGI by Personal Exemptions, which for 2017 were $4,050 for each exemption claimed on your return. The new law significantly increased the Standard Deduction and expanded Child Tax Credits, so many, but not all, taxpayers will benefit despite losing the exemptions.

Many taxpayers were able to deduct some moving expenses if the move was job related. However, beginning with the 2018 return, moving expenses are not deductible except when you’re active-duty military and the move is required for your service.

The taxation of Alimony payments will change beginning in 2019. If you pay alimony under an agreement finalized OR MODIFIED after 12/31/2018 the payment is not deductible by the person paying the alimony and it is not taxable to the person receiving the alimony. The payment is deductible for the payor and taxable for the recipient as it always has been for 2018. Also, the rule does not change if the agreement was entered into prior to 1/1/2019 and the agreement is not modified.

Many more taxpayers will be taking the Standard Deduction in 2018. In most cases, that will be a benefit but there are some significant changes to Itemized Deductions that might cause folks to claim the Standard Deduction when they wouldn’t have under prior law.

The first of those changes is the elimination of Miscellaneous Itemized Deductions. These are deductions for tax preparation fees, investment fees, job search expenses, safe deposit boxes and unreimbursed business expenses. The elimination of the deduction for unreimbursed business expenses could mean a tax increase for folks that aren’t reimbursed by their employer for expenses like auto mileage and travel expenses. This could mean a tax increase for many sales people and over-the-road truck drivers.

The deduction for Home Equity Loan interest is eliminated unless you use the money to buy, build or improve your home. No longer can you use a home equity loan to pay college tuition or buy a car and deduct the interest.

The last change is going to affect many high-income taxpayers. In the past, there was no limit on the deductibility of state and local taxes. These taxes include state income tax, real estate taxes and taxes on personal property like vehicles. Beginning in 2018, the total amount of these taxes you can deduct if you itemize is $10,000. That may sound like a lot, but this limit caps the deduction for all these taxes at a total of $10,000., not each one individually.

As I said, most taxpayers will see a lower tax bill in 2018 compared to 2017 because of overall lower rates and the increased standard deduction. The look of the forms has changed too – not quite a postcard but much less complex for many.

At Faw & Associates, we are always available to answer any of your tax or financial planning questions. We are accepting new clients please contact us for an appointment.At Faw & Associates, we are always available to answer any of your tax or financial planning questions. We are accepting new clients please contact us for an appointment.