Expenses and Exemptions Under TCJA

Expenses and Exemptions Under TCJA

The Tax Cuts & Jobs Act (TCJA) came with more than 600 rules changes.  We want to make sure we continue to cover some of the biggest changes that impact the most people.  Here are some things to keep in mind as we get into filling season.

You’ve likely heard that the standard deduction doubled but personal exemptions went away.  This is a change that affects all taxpayers. So what does it mean? Here’s an example.

Understanding Personal Exemptions & Standard Deduction

The standard deduction increase is huge.  But on the flip side, there are no longer personal exemptions. An exemption is an amount you are allowed to subtract from your annual taxable income. Whether the higher standard deduction offsets the loss of exemptions is dependent on the size of your family and whether or not you itemize your deductions. Here’s an example:

Previously, you could claim an exemption for yourself, your spouse, and your dependents.  In 2018, One exemption was set to be worth $4,150.  So, if it still existed and you had a spouse and one child, your total exemption would be $12,450.  The MFJ standard deduction of $24,000 more than covers this.

But, if you have a spouse and 4 kids, your total exemption would have been $24,900 and now you’re out $900.  Of course, if you already itemize your deductions, the loss of personal exemptions will have a greater negative impact.

Other Expenses to Note

Business Expenses: If you have unreimbursed business expenses from last year, you won’t be able to deduct those anymore. Depending on your job, this could be a big loss. This can include travel expenses from business travel your employer didn’t pay for, scrubs or uniforms you paid out-of-pocket, or even continuing education classes you took for your profession.

Moving Expenses: Unless you are moving on military orders, there is no longer a moving expenses deduction.  One caveat is that if your employer pays for your moving expenses, you don’t have to pick that up as income.

Job Search Expenses: You can no longer deduct for expenses related to finding a new job. Previously, those expenses could include travel costs incurred for a job interview, fees for resume and cover-letter services, or fees for job-placement services.

Tax Preparation Fees: You can’t write off any costs from getting help with your taxes from 2018 through 2025 under the new tax law changes. There’s one exclusion: Self-employed workers can still deduct these services as a business expense.

Charitable Contributions: Before you could write off 80% of a charitable donation to your school that ultimately helped you reserve better stadium or arena seats. Beginning in 2018 those types of contributions are no longer deductible.  Other contributions to your Alma Mater remain deductible.

As you can see, the new tax law has made substantial updates. We know taxes and regulations can be confusing, so we’re here to help. Please contact hb&k if you have questions about the new tax law and how it affects you.  We offer tax planning and tax consulting services to help you plan and take advantage of opportunities available to you.