Late last year, federal tax laws underwent sweeping changes. Nearly a year later, you can be forgiven for not keeping up with them all. Here is a look at some important (yet under-recognized) adjustments that may affect the numbers on your 2018 federal return.
First, most miscellaneous itemized deductions are gone.
The Tax Cuts & Jobs Act of 2017 eliminated dozens of them through the year 2025. Tax preparation expenses? You can no longer deduct those. Expenses linked to a hobby that made you some income? In 2018, no deduction available. Legal fees you paid that were related to your work as an employee? No, you cannot deduct them. Chat with a tax professional; if your tax situation is complex, chances are some deduction, which you may have relied on, is history.
Can you still claim a deduction for continuing education expenses?
No. Some taxpayers used to present the cost of classes or training designed to expand or maintain their job skills as an unreimbursed employee business expense. Some would even claim a deduction for tuition paid toward their MBA. This is now disallowed.
Employee vehicle use deductions are gone.
You can no longer deduct unreimbursed travel expenses related to the performance of your job, and that includes mileage expenses stemming from the use of your car or truck. In response, some employees have asked their employers to set up “accountable” plans allowing them to receive tax-free reimbursements.
(You will still find the deduction for certain types of business mileage on Schedule C, and you may still deduct miles you drive for medical purposes and in the service of qualified charitable organizations.)
Speaking of mileage, the moving expense deduction has all but disappeared.
Only active-duty members of the military may take this deduction now, and only if the move is made in response to a military order.
You can no longer claim personal casualty losses as itemized deductions.
There is an exception to this. You can still deduct these losses in tax years 2018-25 if they occur due to an event that becomes a federally declared disaster. Unfortunately, most fires, floods and storms are not defined as FDDs, and most theft has nothing to do with natural or manmade disasters.
Fortunately, the standard deduction has almost doubled.
It was slated to be $6,500 for single filers, $9,550 for heads of household and $13,000 for joint filers; thanks to tax reform, those respective standard deduction amounts are now $12,000, $18,000 and $24,000. (The personal exemption no longer exists.)
How have things changed regarding charitable donations?
There is less of a tax incentive to make them, because many taxpayers may just take the higher standard deduction, rather than bothering to itemize. The non-partisan Tax Policy Center estimates total U.S. charitable gifting will fall to $20 billion this year, a 38 percent drop, due to the 2017 federal tax reforms. That said, there are still paths toward significant tax breaks for the charitably inclined.
A traditional IRA owner aged 70 1/2 or older can arrange a qualified charitable distribution from that IRA to a qualified charity or non-profit. The QCD can be as large as $100,000. From a tax standpoint, this move may be very useful.
The donated amount counts toward the IRA owner’s annual mandatory withdrawal requirement and is not included in the IRA owner’s adjusted gross income for the year of the donation.
Some wealthy retirees are now practicing charitable lumping. Instead of giving a college or charity, say $75,000 in increments of $15,000 over five years, they donate the entire $75,000 in one year. A single-year charitable contribution that large calls for itemizing.
Turn to a tax professional for insight about these changes and others.
The revisions to the Internal Revenue Code noted here represent just the tip of the proverbial iceberg. Additionally, you may find that the changes brought about by the Tax Cuts & Jobs Act have given you new opportunities for substantial tax savings.