Deductions: To Itemize or Not to Itemize–That Will Be the Question in 2018

Deductions have really changed under the new Tax Code.

We are more enthralled with this phenomenon than with the new tax brackets and rates.

In any tax year, you face a fork in the fiscal highway of life when contemplating your tax filing.  One road is named standard deduction and the other is termed itemization.

We believe this your one of your first major decisions in beginning your tax return in any year. In this article, AP Accounting and Tax Services considers this decision for your 2018 filing, in light of the new tax laws.

Tax Cuts and Jobs Act of 2017 Changes, Modifies or Obliterates Some Deductions

Let us begin by condensing the words of famed American poet, Robert Frost:

“Two roads diverged in a yellow wood
And sorry I could not travel both And be one traveler, long I stood.
And looked down one as far as I could To where it bent in the undergrowth…”

And the poem continues with a decision:
“Then took the other, as just as fair.”
And then the words conclude, with a consequence. “and that has made all the difference…”

Knowledge about the lawful deductions endorsed by the New Tax Act could make all the difference in your tax refund in 2018.  How will you choose to file your 2018 tax return?  Will you file your income tax based on standard deductions or itemize your deductions?

The New Standard Deductions Rocked the News Media and Internet Chatter

Much of the mass media and quite a few financial pundits have already claimed that most Americans will choose to take the standard deduction, even if, in previous years, they have itemized deductions on their Income Tax Forms.  At AP Accounting and Tax Services, we are not so quick to judge your case on trends.  Will the new standard deduction be right for you or should you take “the road less traveled by…” and itemize your taxes?  And will it “make all the difference” in your budget?

Let’s explore the options in this decision.

To Itemize or Not To Itemize? That Will Be the Big Deduction Question in 2018…

Thus, this blog will focus on the dilemma between taking the easiest road to 2018 tax filing, the standard deduction, or taking the “road less traveled by,” with itemizing in the face of the new laws governing deductions.

Let’s begin with a look at the Standard Deduction.

The government appears to have almost doubled our standard deduction under the auspices of the Tax Cuts and Jobs Act of 2017.

Just in case you do not know, the standard deduction for single filers will be $12,000 in 2018.  It appears to have doubled, from $6,350 in 2017. Likewise, the deduction has appears to have doubled to $24,000 for married couples filing jointly. They only merited $12,700 in 2017. (There’s a reason we call this an “appearance” of doubling, which you’ll see as you continue to read this blog.)

Tax Deductions That Have Been Cut or Altered by Tax Cuts and Jobs Act of 2017

1. Cut and Obliterated:  The Personal Exemptions

Under the old tax system, you could claim a $4,050 personal tax exemption yourself, plus your spouse and each dependent on the tax return.  As we mentioned in previous blog, the government has terminated the Personal Exemption deduction. 

On the one hand, some of you who file will not feel this change because the higher deduction will help you.  On the other hand, others will feel the difference—perhaps a lot.  An example that comes to mind is a family with several children and a single parent.  They could “benefit less from the higher standard deduction than they would have from the personal exemption.”

2. The Alteration of the State and Local Tax Deductions (SALT) Deduction:

This controversial change in the tax code obliterates the previous privilege of deducting the total amount of state, local, sales and property

taxes.

You can, however, deduct up to $10,000 worth of SALT.  In a recent article, Forbes stated, “If you live in an area with high income, sales and property taxes, you might be paying more in 2018 and beyond.”  As we noted above, Forbes explained, “Previous rules allowed filers to deduct the full amount of either their state income taxes or their state and local sales taxes as well as property taxes.” 

This new $10,000 cap on SALT is not going to seem fair to some residents in areas where state and local taxes are high, but it’s the law.

3. Highly Reduced: the Mortgage Interest Deductions

Contrary to what some people say, the mortgage interest deduction is not “gone.”  However, for mortgages originated after Dec. 15, 2017, tax filers can deduct interest paid only up to the cap of $750,000.

Interest On Home Equity Loans

Less well known is the new rule that you will no longer be allowed to deduct interest on home equity loans or lines of credit.  Thus, many financial advisers are discouraging homeowners from making new home equity loans for debt consolidation or home improvement projects, at least until they are fully aware of the tax consequence.

4. A New Price Tag on Divorce:  Non-Tax Deductible Alimony Payments

There are two significant changes regarding divorce and taxes.  These big changes will affect new divorce agreements of 2019.

On the one hand, filers after that time will not be allowed to deduct alimony they pay to an ex-spouse. On the other hand, the recipient of the alimony will no longer have to claim the payments as taxable income.

5. Moving Day Blues?

In the old days, if you moved more than 50 miles or had to relocate to keep or get a new job, you could take a reasonable moving expense tax deduction. However, this deduction was terminated as of Dec. 31, 2017.

News You Can Use:  Lawmakers also Dissolved Four Smaller Tax Deductions You Won’t Be on Your Next Income Tax Filing

With the Tax Cuts and the new tax laws, there are four more itemized deductions you will not be able to utilize after 2017.  Please be aware the following deductions will no longer exist:

6.  No more employee business expenses.

7.  Tax preparation fees are no longer a tax deduction.

8.  Investment interest expenses are invalid for tax deductions.

9.  Personal casualty and theft losses no longer qualify as tax deductions. (However, there is an important exception in the case of property losses: You will be able to deduct losses incurred in federally declared disaster areas.  This one will be dear to the hearts of this season’s Hurricane Victims.)

AP Accounting and Tax Services: Tax Planning Protects Your Future

You might be surprised we are relating much of our blog today with the next tax

filing.  Part of the very reason for this blog is to share information so that your perception of paying taxes becomes tax planning instead of a once-a year-rushed ordeal.

Thank you  for reading the AP Accounting and Tax Services Blog.  Please return and read our next blog when we will be stressing deductions that you can use in 2018.

And, don’t worry, at AP Accounting and Tax Services, we can pre-figure your tax situation both ways, then choose the one that brings you the best tax return.