Income Tax Service
5200 W Market St
Greensboro, NC 27409
March 01, 2018
The Tax Cuts and Jobs Act
WHICH DEDUCTIONS DIDN'T MAKE THE CUT?
While itís too early to tell whether the Tax Cuts and Jobs Act will help the majority of taxpayers or hurt them, what we do know is that anumber of key tax breaks are still very much alive and well under the new laws. On the other hand, a number of valuable deductions were slashed in the process, and itís for this reason many filers fear theyíll lose out going forward. Here are some of the tax breaks that are no longer available this year.
THE HOME EQUITY LOAN INTEREST DEDUCTION
As the name implies, a home equity loan is one in which your property serves as collateral on the amount you borrow. It used to be that the interest paid on home equity loans was deductible for loans worth up to $100,000, but going forward, home equity loan interest wonít be deductible at all. This is a potentially huge blow to homeowners, particularly those with existing loans who were counting on that tax break. Thatís because loans signed prior to 2018 are not grandfathered into the old system; rather, theyíre treated the same as new loans.
THE MOVING EXPENSE DEDUCTION
It used to be that if you relocated for job purposes, you could deduct expenses associated with that move. The only catch was that your new job needed to be at least 50 miles greater than the distance between your old home and old job, and that you needed to work for at least 39 out of the 52 weeks following your move. Provided you met these criteria, you could deduct the cost of everything from hiring movers to paying for storage units. But now, this tax break no longer exists, which means that if youíre planning a work-related move, you may want to negotiate with your employer to cover at least a portion of your expenses.
THE UNREIMBURSED JOB EXPENSE DEDUCTION
It used to be that when you incurred job-related costs your employer wouldnít cover, you could deduct those expenses provided they were directly related to your work and that they, along with other miscellaneous deductions, totaled more than 2% of your adjusted gross income (AGI). For example, many fields require you to maintain a professional license or certification at your own expense, while other jobs require you to purchase certain equipment thatís your responsibility to cover. Going forward, however, such unreimbursed job expenses are no longer deductible, so if youíre facing a host of them, you might try appealing to your employer to help share the burden.
THE INVESTMENT FEES DEDUCTION
Prior to 2018, you had the option to deduct fees paid to a financial advisor provided that they, along with other eligible miscellaneous expenses of yours, exceed 2% of your AGI. But as is the case with unreimbursed job expenses, the option to deduct investment fees no longer exists. Now if the fees youíre used to paying relate specifically to commissions, youíre not totally out of luck. Those commissions can still be applied to the cost basis of your investments, which means that if you sell them at a profit, they can be used to reduce your capital gains. But any advisory fees you incur wonít help you at all from a tax perspective.
THE TAX PREPARATION FEES DEDUCTION
Thinking of hiring a tax professional for this year? If you need the help, by all means, go for it-- but know that you wonít snag a tax break in the process. Thatís because tax preparation fees fall under the same miscellaneous fees deduction -- a deduction that got chopped going into 2018.
THE CASUALTY AND THEFT LOSS DEDUCTION
Maybe your property sustained damage due to a flood or fire, or you had a piece of valuable artwork stolen. It used to be that you could claim a deduction for any such personal losses, provided they exceeded 10% of your AGI. But beginning for 2018, you can no longer claim this deduction unless it is associated with a federally declared disaster area (such as would be the case in an area hit by a major hurricane).
THE ALIMONY DEDUCTION
Up until last year, alimony payments were tax-deductible for the ex-spouses responsible for making them, and they counted as income for those who received them. Going forward, alimony payments will no longer be deductible, nor will they be counted as income. Now if youíre already paying or receiving alimony as part of a divorce agreement, this change wonít impact you. But those who sign divorce agreements after Dec. 31, 2018 will be subject to the new rules.
THE UNLIMITED STATE AND LOCAL TAX DEDUCTION
Though the SALT (state and local tax) deduction has not disappeared completely, it looks very different in 2018 compared to years prior. Thatís because the deduction used to be unlimited, thus allowing filers in states with high income and property taxes to shave quite a bit of money off their IRS bills. Effective this year, however, the SALT deduction is capped at $10,000, and while thatís certainly better than nothing, it does put a sizeable number of taxpayers at a disadvantage.
THE BUSINESS ENTERTAINMENT EXPENSE DEDUCTION
Though several aspects of the new tax laws are designed to benefit businesses, hereís one place they might lose out: It used to be that if you took a client out for business purposes, whether to an event or a restaurant, you could deduct 50% of your costs. Going forward, however, the option to deduct expenses related to business meals and entertainment will no longer exist. Meal expenses incurred over the course of business travel, however, can still be deducted at a 50% rate.
All information provided is general in nature and intended to create awareness,
not to address the specific circumstances or concerns of any individual or
entity. Although we try to provide correct and timely information, we cannot
guarantee the accuracy of any information or that such information will
continue to be accurate in the future due to the changing nature of the tax
laws. Before acting on any of the information provided here, you should consult
with a professional advisor who knows all of the unique facts and circumstances
pertinent to your particular situation.