What the Tax Law Changes Mean to Your Income
In a previous article we reviewed the number of changes contained in the tax overhaul, and what that means for individuals and businesses. Many tax payers are wondering about the changes to allowable deductions. Whether you are an employee, a freelancer, or a solopreneur you’ll want to note some of these changes.
If You’re an Employee: Lost Deductions
Many employee-related miscellaneous deductions were eliminated with the stroke of the pen in new tax law. For tax year 2017, employees still have the option to deduct work-related expenses that added up to more than 2 percent of their gross income, if the employer didn’t reimburse them.
Beginning in 2018, for example – nurses can no longer write off their scrubs. Professors can’t subtract research costs, though by some stroke of luck, school teachers can still write off up to $250 of what they spend out of pocket for classroom supplies. Oh, and salespeople can’t deduct their travel expenses.
Other no-longer-allowed “miscellaneous itemized deductions” include home office costs, work-related legal fees, medical examinations required by an employer, licenses and even union dues.
All these changes may mean some restructuring the ways funds are allocated. If your employer provides you with a fairly open-ended expense allowance that money is taxable income. The ability to write-off work related expenses against that income made sense. But with the new law, it might be wise to request an accountable system that requires a receipt. That way you show a purchase receipt or mileage log and receive specific reimbursement from your employer, rather than receiving an allowance that you can’t write off expenses against.
There still may be expenses you incur that are not reimbursed, but because the scale is definitely tipped in favor of corporations, talking openly to your boss about this imbalance might move the needle back in your direction.
A more radical step would be to explore becoming an independent contractor, but that is another conversation.
Even though the standard deduction has almost doubled to $12,000 for single filers and $24,000 for married couples, that may not make up for the ability to write-off unreimbursed business expenses.
Other Items Worth Noting in the New Tax Bill
- Employees, used to receiving up to $255 a month in parking and transportation subsidies from their employer, may see that amount diminish or disappear. That corporate deduction is gone for 2018, so whether your employer decides to continue offering is questionable.
- Your home equity loan interest is still deductible if it is for home acquisition or improvements only. The total of the first and the equity line are limited to $750k.
- The personal exemption which allowed you to reduce your taxable income by $4,050 per person is gone. The increase in the standard deduction under this tax reform may not actually be enough to compensate for the loss of this and other personal exemptions for some taxpayers.
- The deduction for moving expenses ends. To be deductible in 2017, your move had to be for a job change, and the new job had to be at least 50 miles further from where you used to live for your old job.
- Tax preparation fees are no longer deductible after 2017.
- Going forward, in 2018, casualty losses from fire, robberies, and natural disasters are no longer deductible, unless your loss is caused by a natural disaster and deemed to be one by a presidential declaration.
While some things are spelled out clearly, it seems the new tax law is full of typos and outright mistakes that may cause problems with interpretation.
We make a point of staying informed about the law and its tax implications for our clients. Contact our Corte Madera office today to get a good start on your tax planning year.