The Down Low on Deductions
It is time to gather your tax documents to have your tax returns prepared. Individual taxpayers who are unsure exactly how the Tax Cuts and Jobs Act changes affect them may be uncertain what documents they need to gather, particularly if they have historically itemized their income tax deductions.
The Tax Cuts and Jobs Act increased the standard deduction amount, so it is likely many taxpayers who historically itemized deductions on their personal income tax returns will no longer benefit from itemizing. The new standard deduction amount is $12,000 for single filers and $24,000 for married couples filing jointly. That is increased significantly from 2017 standard deduction amounts of $6,350 and $12,700. In order to itemize your deductions in 2018 through 2025, you will need to have more than your standard deduction amount in itemizable items. If you are unsure if you have enough to itemize, you should gather your receipts as usual and let your tax preparer make that determination for you.
Additional confusion arises because taxpayers know the itemized deductions were affected by the new tax laws, but some taxpayers may be uncertain which of their itemized deductions were affected. If you have any doubt as to what receipts you should give to your preparer, it is best to err on the side of caution and provide more rather than less. Your preparer should be able to sort through everything and determine what can be deducted and whether it makes sense for you to itemize your deductions at all.
The following itemized deductions are still available:
- Medical and Dental expenses, including insurance premiums
- State and local taxes, including real estate and personal property taxes, subject to limitations
- Home mortgage interest, subject to limitations
- Charitable contributions, subject to limitations and reduction based on state or local tax credits
- Alimony for the 2018 tax year, and in certain cases going forward
The following itemized deduction items have been eliminated:
- Deductions for employee business expenses
- Tax Preparation Fees
- Investment Expenses, including investment management fees
- Employment-related educational expenses
- Job Search Expenses
- Moving Expenses, with an exception for certain military orders
- Hobby Losses
- Safe Deposit Box Fees
- Investment Expenses from Pass-Through Entities
- Personal casualty and theft losses, unless in a federally-declared disaster area
- Alimony for the 2019 tax year and forward, with some exceptions
Keep in mind the eliminated deductions are only eliminated to the extent you itemized deductions to claim them. Employees who receive W-2 income statements from their employers previously were able to itemize to deduct employee business expenses and employment-related education expenses that were not reimbursed by their employers. If you are an independent contractor or operate a business and your tax returns typically include a Schedule C, you can still deduct your business expenses on your Schedule C in the same manner as you did in previous years. Likewise, if you file a Schedule C for a business that some might do as a hobby, such as making and selling art and craft items, you will still be able to deduct losses from your art and craft business.
It is worth noting that there are other adjustments to income that were previously listed on the first page of the tax form. The new tax form shuffles these to a separate schedule, but for the most part they still exist. This includes educator expenses, Health Savings Accounts, self-employment costs, student loan interest, and IRA deductions.
A lot of information that was previously included in the standard 1040 form has been moved to separate schedules in an attempt to simplify the basic tax form. Be wary of box store tax preparation services that bill per page or per schedule. Individual 1040 tax returns are now likely to have Schedules 1 through 5, and sometimes 6, attached to them, which did not exist in past years, in addition to the old schedules you are used to filing. Scaringi Law bills for tax preparation at a flat fee, so you do not have to worry about surprise charges. Call 717 657 7770 to schedule a consultation with one of the Scaringi Law tax attorneys.