Wednesday, December 27, 2017
WHAT YOU SHOULD KNOW AS YOU BEGIN THE NEW YEAR
Now that the idiot in the White House has officially signed the Tax Cuts and Jobs Act (officially, it appears, “An Act to provide for reconciliation pursuant to titles II and V of the concurrent resolution on the budget for fiscal year 2018”), let me discuss some of what this means for taxpayers for 2018.
First - contrary to what Donald T Rump has said (a statement that must be made all too often today, considering that idiot Trump is a serial liar) – the GOP Tax Act did not repeal Obamacare! What it did was repeal the “individual mandate” – the requirement that every American must purchase or obtain “adequate” health insurance for every member of his or her household for the entire year. And it repealed the penalty assessed on the tax return for not having adequate full-year coverage. But this is effective with tax year 2019. The individual mandate and the penalty is still in effect for tax year 2018. You will be penalized on your 2018 Form 1040 if every member of your household does not have adequate health insurance coverage for all of 2018 and you do not qualify for a statutory exemption. The penalty does not disappear until 2019.
When it comes to recordkeeping –
(1) It is still important to keep track of medical expenses, and medical mileage, for 2018. Perhaps even more so, as the AGI exclusion is returned to 7½% (down from 10%) for all taxpayers, regardless of age, for 2018 (and 2017) only.
NJ taxpayers must keep track of medical expenses, whether or not they have been able to claim a federal deduction, because you can deduct unreimbursed medical expenses on the NJ-1040 if the total exceeds only 2% of your “NJ Gross Income”. And you can deduct health insurance premiums deducted from your paycheck on the NJ-1040. While these payments may be considered “pre-tax” for the federal return, they are NOT pre-tax when it comes to reporting NJ state wages. And NJ taxpayers do not have to reduce the medical deduction claimed on NJ-1040 by reimbursements and payments from employer-sponsored Flexible Spending Accounts (FSA) or Health Savings Accounts (HSA), for the same reason.
(2) Under the GOP Tax Act, the following expenses are no longer deductible on Schedule A for tax years 2018 through 2025 -
* Job-related moving expenses, except for members of the Armed Forces who move due to a military order. And employer moving expense reimbursements, again except for military personnel, are no longer excluded from income and will be included in taxable wages reported on Box 1 of your W-2.
* Investment interest
* Unreimbursed employee expenses (including union and professional dues, continuing professional education, job-related subscriptions and publications, home office expenses, uniform expenses, business use of your car, travel expenses, meals and entertainment expenses, license fees, tools used for work, and job search expenses) – except for the $250 adjustment to income for the unreimbursed expenses of K-12 educators.
* Tax preparation and advice costs and expenses relating to tax audits
* Investment fees and expenses, including safe deposit box rental fees
* Legal expenses for the collection or protection of income.
* Hobby expenses
So, unless you need to do so for employer reimbursements, you no longer need to keep track of business expenses or mileage, or the other items listed above, for 2018. Of course, business expenses are still fully deductible by self-employed sole proprietors who file a Schedule C or C-EZ and for farmers filing a Schedule F.
For business entities, including Schedule C filers, business “entertaining” – “entertainment, amusement, or recreation that is directly related to (or, in certain cases, associated with) the active conduct of the taxpayer’s trade or business” – is no longer deductible. Under current law businesses can deduct 50% of these expenses. What this means is that you can no longer deduct the cost of taking a client to the theatre or a sporting event following a legitimate business discussion. Perhaps the cost of the client’s ticket could qualify as a business “gift”, with the deduction limited to $25.00.
(3) Beginning in 2018 home equity interest is no longer deductible, regardless of when the loan was initiated. Period. There is no grandfathering of existing home equity debt interest. It is truly more important than ever to keep separate track of acquisition and home equity debt, going back to when you first incurred home equity debt! Most taxpayers don’t do this – but they had better start doing this beginning in 2018. We currently do not know if or how the Form 1098 will change for tax year 2018 to reflect the new law.
I am in the process of rewriting my “Mortgage Interest Guide” to reflect the new law, which includes worksheets and instructions for doing this. Click here for more information on this report.
Just so you know, home equity loan interest on up to $100,000 of principle, and the other expenses discussed above, is still deductible for 2017.
So, some taxpayers will have less work related to tax recordkeeping during the year for 2018 – 2025, and some will have more.