Tax Deductions: What's New?
As many discovered with the last tax season, it was more beneficial to take the standard deduction and forgo itemized deductions. Then again, you may feel that your expenses exceed standard deduction amounts. Taxpayers will have to take a hard look at their expenses every year to see whether itemization or the standard deduction is the better choice.
•Medical and dental expenses — If your expenses in these categories are more than 7.5 percent of your adjusted gross income, you get a deduction.
•State and local taxes — You will not be able to deduct state and local income, sales and property taxes if your deductions exceed $10,000; $5,000 for married taxpayers filing separate returns.
•Miscellaneous deductions — Don't try to deduct any job-related expenses that exceed 2 percent of your adjusted gross income. Included are such unreimbursed employee expenses as uniforms, union dues and the deduction for business-related meals, entertainment and travel.
•Home equity loan interest — You won't be able to deduct interest that you paid on home equity loans except if you took out the loan to buy, build or substantially improve your main home or second home.
•Limit for charitable contributions modified — The limit on charitable contributions of cash has increased from 50 percent to 60 percent of your adjusted gross income, so you may be able to deduct more of your charitable cash contributions.
•Deduction for casualty and theft losses has been modified — Net personal casualty and theft losses are deductible only to the extent that they're attributable to a federally declared disaster. You can elect to deduct the casualty loss in the tax year immediately preceding the tax year that you incurred the disaster loss.
•The deduction for moving expenses is suspended — There is no deduction for use of an automobile as part of the move, either. However, if you are a member of the U.S. Armed Forces on active duty and move because of an order, and you don't get reimbursed by the government for the expense, you can deduct it from your taxes. If you had to move for work other than the armed services and your employer reimbursed you, count that money as taxable income.
•Repeal of deduction for alimony payments — Alimony and separate maintenance payments are no longer deductible for any divorce or separation agreement executed after Dec. 31, 2018. Note that alimony and separation maintenance payments are no longer included as income, so you won't need to report these payments on your tax return.
Because the standard deduction is nearly doubled, many taxpayers will opt not to itemize deductions, which typically makes filing your taxes easier.
Finally, note a potential silver lining: You may be able to deduct more of your total itemized deductions if your itemized deductions were limited in the past due to the amount of your adjusted gross income. The old rule that limited the total itemized deductions for certain higher-income individuals has been suspended.
Tax deductions can be huge money-savers if you qualify for them. Otherwise, use the new higher standard deductions. Of course, new laws, regulations and interpretations can make subtle but important differences, so consult regulations and qualified professionals as you approach the next filing date.