​Four Tax Deductions Eliminated under the New Tax Reform

The New Tax Reform signed into law by President Trump in December 2017 simplified taxes for millions of Americans by almost doubling the standard deduction. Starting with tax year 2018, the IRS expects millions of taxpayers to stop itemizing and start taking the standard deduction again. Even the 1040 tax form is being greatly reduced in size. However, to simplify the forms and push people to take the standard deduction, many tax deductions have been eliminated. Depending on your individual circumstances, you may not qualify for the standard deduction. For others, even with the standard deduction increasing, it may still be better to itemize deductions. It is important to plan well, as the worst situation would be to get stuck with a high, unexpected tax bill. If you rely heavily on one or more of the tax deductions that are eliminated, it will be worth your time to take a closer look, so you can plan accordingly. Tax season is quickly approaching. Here are four tax deductions eliminated under the New Tax Reform.

Personal Exemption

Although not technically a deduction, the personal exemption allowed taxpayers to deduct $4,050 for each dependent they claimed on their tax return. For example, a family of four could deduct $16,200 ($4,050 x 4) from their taxable income. This meant if their taxable income was $75,000, it was reduced to $58,800 ($75,000 - $16,200), just by the personal exemptions alone. Eliminating the personal exemption greatly limits the tax benefit of the standard deduction increasing, especially for families. The standard deduction for single filers ($12,000), head of household filers ($18,000), or married filing jointly filers ($24,000) is the same regardless of how many children / dependents someone has. Legislators increased the Child Tax Credit to help families. However, the Child Tax Credit applies only to children under the age of 17. Families that have seniors in high school, dependents who are disabled, or children in college will be affected more adversely, as they will lose the personal exemption and not qualify for the Child Tax Credit.

Employee Expense Deduction

If you are paid as a W-2 employee, in the past, you could deduct expenses related to your job. For some taxpayers, especially ones who used their personal vehicle for work or have a home office and were not reimbursed by their employer, this was a huge deduction. Now, job expenses are no longer deductible. Although a small amount ($250) is still deductible for educators, a lot of educators spend over $250 annually on their students and classrooms. Before the New Tax Reform, they could qualify to take the additional amount as job expenses, subject to the 2% adjusted gross income (AGI) threshold. This change will adversely affect taxpayers who use their personal car for work, have a home office, must buy a lot of specialty equipment, clothing, and/or shoes, or who need to purchase a lot of supplies (like teachers). If you have been on the fence about asking for that raise and have a lot of unreimbursed job expenses, now, might be the time to ask for it or at least ask about getting reimbursed. If you are self-employed, for example driving for a ridesharing company like Lyft or Uber, you still qualify to deduct your business expenses. This deduction is eliminated only for employees. Maybe the thought was with the corporate tax greatly reduced, companies should be picking up these expenses – not employees, not the government. However, the bigger question is will companies continue to pass these expenses on to their employees or will they start picking up the tab.

Moving Expenses

In previous tax years, if you were moving for work and met other specific qualifications, you could deduct moving expenses. Under the New Tax Reform going forward, the deduction for moving expenses has been disallowed except for members of the military. Even then, they need to meet certain criteria to be able to claim the deduction. However, for everyone else, starting with tax year 2018, the deduction has been eliminated.

Miscellaneous Deductions

This group of tax deductions covered a lot of usually small deductions. To be deductible in the past, they must have exceeded 2% of your AGI. However, if you deducted a lot of them or relied heavily on one or more of them, they could have added up. Among the many miscellaneous deductions that are eliminated under the New Tax Reform are:
  • Tax preparation fees;
  • Professional dues;
  • Education expenses;
  • Work related legal fees;
  • Union dues;
  • Rural mail carriers’ car expenses;
  • Occupational taxes; and
  • Job search expenses.
These are just a few of the miscellaneous itemized tax deductions that are disallowed under the New Tax Reform. Although the effect is expected to be minimal, depending on the deduction, its elimination could have a significant impact. For example, if your tax preparation fees were $200, your AGI would have needed to fall below $10,000 to receive any deduction at all. However, if your personal vehicle expenses related to your rural mail carrier work is $5,000 and your AGI is $35,000, you are losing a $4,300 deduction ($35,000 x 2% AGI threshold limit = $700 | $5,000 expense - $700 limit = $4,300). It is important to understand your individual tax situation and how the recent changes will affect you personally, so you can plan accordingly.

The Bottom Line

If you have taken the standard deduction in the past, the elimination of these deductions will not affect your tax situation. These deductions only apply to taxpayers who take the itemized deduction. If you took the itemized deduction in the past, make sure you understand how the New Tax Reform affects your individual tax situation. Do not get caught with a high, unexpected tax bill. Schedule an appointment today with the accounting and tax preparation professionals at Gudorf Tax Group. Our professionals will review your individual tax situation and will help prepare you for the New Tax Reform changes that affect your 2018 taxes.