One of the continuing education instructors that I really enjoyed this past fall called the Schedule A an endangered species. The Joint Committee on Taxation reported that in 2017 46.5 million tax returns claimed itemized deductions and they are estimating that itemizers will drop to 18 million in 2018. This is a full 60% decrease in Schedule A filers. Before you automatically ignore the possible deduction please consider the following.
The following deductions are like the Giant Panda, endangered but still around.
- Medical Expenses: No changes to what is deductible. For 2018 the floor for these deductions is 7.5% of your Adjusted Gross Income (AGI).
- State, Sales Tax, Personal Property and Real Property Taxes: These deductions are all still available, the only change is that they are capped at $10,000. No taxes paid over that amount will be deductible.
- Interest: Mortgage interest & points paid – the only change is the limit to the amount of acquisition debt that is allowed. If your mortgage is over $750,000, there will be a limit on the amount of interest that is deductible. This is down from $1 Million.
- Charitable Contributions: The only change here is the increase in the total limit that is deductible, up 10% from 2017 and now 60% of your AGI. All other rules remain the same.
- Non-Business Casualty Losses are now only deductible if they are related to a Presidentially-declared disaster area.
- Gambling losses to the extent of winnings and repayment of compensation – no changes.
Now the bad news – gone the way of the Dodo Bird are the deductions that were subject to the 2% floor. Employees with unreimbursed business expenses will be the ones that are most affected by this change. There are no longer any deductions for mileage, union dues, cellphone usage or travel expenses for employees (business deductions have not changed). The other expenses in the eliminated section are your tax prep fees, IRA separately billed fees, and safe deposit fees. Ask us about ideas to help ease the pain of losing these deductions.
My free advice this “Friday” – don’t automatically assume that the Schedule A has become extinct, be sure to do the math and ensure your maximum deductions.
Check back next Friday to see how progressive our tax system is.
~Amy