This week we will review some of the changes from the Tax Cuts and Jobs Act passed last December.
Beginning in 2018, many taxpayers who claimed itemized deductions in prior years will no longer be able to do so. That's because the basic standard deduction has been increased (to $24,000 for joint filers, $12,000 for singles, $18,000 for heads of household, and $12,000 for marrieds filing separately), and many itemized deductions have been cut back or abolished.
No more than $10,000 of state and local taxes may be deducted; miscellaneous itemized deductions (e.g., tax preparation fees, investment advisory fees) and unreimbursed employee expenses are no longer deductible. Personal casualty and theft losses are deductible only if they're attributable to a federally declared disaster and only to the extent the $100-per-casualty and 10%-of-AGI limits are met.
You can still itemize medical expenses to the extent they exceed 7.5% of your adjusted gross income, state and local taxes up to $10,000, your charitable contributions, plus interest deductions on qualifying residence debt. However, payments of those items won't save taxes if they don't cumulatively exceed the new, higher standard deduction.
Some taxpayers may be able to work around the new law by applying a "bunching strategy" to pull or push discretionary medical expenses and charitable contributions into the year where they will do some tax good.
For example, if a taxpayer knows he or she will be able to itemize deductions this year but not next year, the taxpayer may be able to make two years' worth of charitable contributions this year, instead of spreading out donations over 2018 and 2019.
Disclaimer: The items included in the Tax Tip Tuesday Blog are informational only and are not meant as tax advice. Consult with your tax advisor to determine how any item applies to your situation. IRS Circular 230 disclosure: To ensure compliance with requirements imposed by the IRS, we inform you that any U.S. federal tax advice contained in this communication (including any attachments) is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein.