Tax Reform Made Some Important Itemized Tax Deduction Changes
Tax deduction changes in the Tax Cuts and Jobs Act affect almost every person who files itemized deductions on tax returns with the IRS in prior years. One favorable change is that tax reform is nearly twice the standard deduction for most taxpayers. This means that many individuals may prefer to take the standard deduction. This standard deduction makes tax filing more simple. However, some taxpayers will still itemize their total deductions when these deductions exceed the standard deduction amount for the taxpayers filing status.
Did You Notice a Difference in Your Tax Refund or What You Owe?
Most likely you will notice a significant difference in your tax refund or amount you owe. The average amount was just under $200 per tax return filed with the IRS this year. Yet, in all fairness, some people have reported that they made out very well. Here, we want to draw attention to what taxpayers need to know when they plan to itemize deductions:
Medical and Dental Expense Deduction
Another area that had tax deduction changes is medical and dental expenses. Taxpayers can deduct the part of their medical and dental expenses that’s more than 7.5 percent of their adjusted gross income. So, think about it. Let’s say your adjusted gross income was $80,000, that would require medical and dental expenses of at least $6,000. The standard deduction amounts will increase to $12,000 for individuals, $18,000 for heads of household, and$24,000 for married couples filing jointly and surviving spouses.
State and Local Taxes
The law limits the deduction of state and local income, sales, and property taxes to an aggregate or total deduction of $10,000. Now, for a married taxpayer filing separate returns, the amount is $5,000. Therefore, will want to note that when you take this deduction, taxpayers can’t deduct any state and local taxes paid over this amount.
Next, the new tax law suspends the deduction for any expenses that relate to your job. Also, other miscellaneous itemized deductions that exceed 2 percent of adjusted gross income is also taken off the table. This includes employee expenses such as uniforms, union dues and the deduction for business meals and entertainment. Also, it includes travel. So, change affects those expenses you put out and are no longer a reimbursement by your business or employer. Therefore, when you do these activities and your employer doesn’t give you a reimbursement, you eat the costs with no tax benefit to you.
Home Equity Loan Interest
No longer deduct is a taxpayer able to claim interest paid on most home equity loans. The only exception is that the loan money was for the purpose to to buy, build or substantially improve their main home or second home.
Home equity loans allow a property owner to borrow against their home’s value over the amount of property’s mortgage loan. This allows the homeowner to access large amounts of money and makes it easier to qualify for other types of loans because the home is collateral to secure the loan. However, in the past some borrowers would use the money for things such as a vacation or their child’s college tuition. No longer will you be able to claim the interest on these types of loan reasons, which means you will need prove of what they money was taken for. Or else, you may have to answer some questions from the IRS.
Let’s Rethink Tax Deduction Changes?
There is a lot of mindset changes that come with TCJA and it is likely you will see a difference in your tax refund this year. That is if you have not seen it already. This will bring up questions in your mind as to why. I invite you to call me, Alex Franch, BS EA at 781.849.7200 or email this tax office at firstname.lastname@example.org for additional information. Worthtax is an ultra-convenient service that uses a triple-check accuracy system that will help you get your taxes completed and filed on time. Worthtax has locations in Norwell, Dedham, and Weymouth. Oh, and we have client discounts specific to your tax service need.
Alex Franch, BS EA
Alex is a Tax Specialist and Partner at Joseph Cahill & Associates / WorthTax. He has a diverse background including a Bachelor of Science from Boston College in Mathematics and extensive military service. Alex is an Enrolled Agent and has a decade of tax preparation experience. He is passionate about serving businesses with tax and financial planning.
Sources and Resources
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