When you filed your taxes with the IRS this year, the return you filed may have been the last you submit under current tax rules.
Popular deductions are on the chopping block or subject to major modifications in the tax plans under consideration, and a big increase in the standard deduction means more people are likely to itemize than ever before.
The new tax reform bill is now law, and taxpayers can expect a lot of changes to take place in 2018. To pay for these tax breaks, lawmakers took away many deductions that millions of taxpayers had used every year to reduce their tax bills. The twelve deductions we'll discuss are just some of the popular provisions that will disappear, and taxpayers will have to look closely at their own personal situations to see whether other, less common deductions are also going away.
1. Personal Exemptions
The biggest move that the tax reform bill made was to take away personal exemptions, which generally allowed taxpayers to reduce their taxable income by $4,050 per person. Many policymakers argued that the personal exemption was essentially merged into the standard deduction, but the rise in the standard deduction under tax reform wasn't large enough to compensate for the loss of personal exemptions for some taxpayers.
2. Home Equity Loan Interest
Mortgage interest on purchase loans is still deductible under tax reform up to $750,000, but the deduction for interest on home equity loans becomes nondeductible once 2018 begins. Unlike with purchase loans, there's no grandfathering provision for existing home equity loans, so for those for whom the deduction is important, looking at potentially repaying those loans sooner than expected might be worth considering.
3. Moving expenses
Taxpayers won't be allowed to deduct moving expenses, as they can for 2017. To be deductible, a move had to be motivated by a job change, with the new job being at least 50 miles further from where you used to live than your old job was. The best thing about the moving expense deduction was that you didn't have to itemize deductions to get it, but it will be gone for 2018 and beyond.
4. Casualty and theft losses except in disaster areas
Casualty losses under old law were eligible as itemized deductions to the extent that they exceeded $100 plus 10% of your adjusted gross income. Events included not only natural disasters but also fires, robberies, and other qualifying occurrences. The new law now preserves the deduction only for disasters for which a presidential disaster area declaration was made.
5. Job expenses
Money you spent on certain job costs, such as license and regulatory fees, required medical tests, and unreimbursed continuing education, was available as an itemized deduction to the extent that it and other miscellaneous deductions exceeded 2% of your adjusted gross income. Now, you won't be able to deduct these costs anymore, making it even more worth your while to try to get your employer to pay them on your behalf.
6. Subsidized parking and transit reimbursement
Employees were eligible under old tax law to get up to $255 per month from their employers to subsidize parking costs or transit passes. Workers didn't have to include those perks in income, and companies could deduct it. Now, the corporate deduction for that cost will go away, and that could lead some businesses to stop offering those programs to workers.
7. Tax preparation fees
Just like job expenses, costs to have your taxes done were also available as miscellaneous itemized deductions. That won't be the case anymore, and any costs for tax preparation will be nondeductible in 2018.
8. Other miscellaneous deductions
A host of other miscellaneous deductions subject to the 2% AGI limitation will all be gone in 2018. These include investment fees and expenses, convenience fees for using a credit or debit card to pay your taxes, and trustee fees for an IRA if paid separately.
9. Donations to colleges in exchange for athletic event seats
One controversial provision allowed donors to give money to colleges and deduct the full amount, even if they got back tickets or seating rights to athletic events. That perk will go away, and donors will have to reduce their deductions by the value of those tickets.
10. Meals & Entertainment
As a business owner, you can still deduct your meals, but no longer entertainment. For example, if you take your team to a baseball game, you can write-off the hot dog, but not the game. Many companies will insist on allowing employees to only take clients out for a meal, because that continues to be deductible.
11. Business Automobiles
The biggest change in deducting automobiles is an increased deduction for car depreciation for cars used for business. This change will most likely result in more business owners buying cars versus leasing. With the Trump tax plan, you can take an $18,000 deduction for a new car the first year you own it. If you buy an SUV or a truck, the vehicle is 100 percent deductible.
12. Medical Expenses
The new tax law allows for more deductions for medical expenses. For 2017 and 2018, medical expenses have and will be deductible if they exceed 7.5 percent of your AGI (adjusted gross income). In 2019, this threshold will increase to 10 percent of your AGI.
Finding way to save on taxes
With the tax code in flux, finding ways to take advantage of every deduction is more important now than ever. Make sure you make yourself aware of these changes. For now, the most important thing an entrepreneur or small business owner should do is talk to a great tax advisor who has studied the new law so you know what is deductible for your situation. Get educated sooner versus later so you can decide if you need to make any changes to your business, investments and day-to-day record-keeping.