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17 Ways The Tax Cuts and Jobs Act Affects You

by | Jan 7, 2019 | Individual Income Tax, Small Business | 0 comments

We all know the Tax Cuts and Jobs Act is complex. That’s why I try to keep it simple.

You can download this free guide which covers 17 high-impact changes in the law that you need to know.
Otherwise, let’s take a look at the 17 ways the Tax Cuts and Jobs Act affects you.

1. 199A Deduction

Prior to 2018, this deduction did not exist. This new deduction allows for a possible 20% deduction of qualified business income for sole proprietors, partnerships and S-Corporation owners. To learn more about this deduction visit this blog post.

2. Alimony Payments

Prior law had alimony payments deducted from income for the payor and added to taxable income to the payee spouse. In the new law, divorce agreements executed or modified after December 31, 2018, alimony is tax-free to the recipient and no longer deductible for the payor.

3. Charity Golf Tournaments

Prior to 2018, expenses related to charity golf tournaments were 100% tax-deductible if you talked business before, during or after the event. However, now expenses are only deductible as a charitable contribution. This provides a far smaller deduction than before.

4. Client and Business Meals

The old law allowed client and prospective client meals to be 50% deductible as long as it was related to a trade or business. The new law changed the language for meal deductions. However, the IRS has issued guidance that business meals with clients continue to be deductible. Read more about business meals deduction here.

5. Employee Meals

Prior to 2018, employee meals were 100% deductible. Now employee meals are only 50% deductible just like the rest of any meals for business purposes. An employee meal is one that is provided at work like snacks or coffee in the office.

6. Entertainment

The old law allowed entertainment directly related to a trade or business as a 50% deduction to business expenses. Now entertainment is no longer a deduction or write-off at all. Yes. That’s right. Any entertainment for business is not a deduction. You can, however, take a meal bought during entertainment as a business meal expense.

7. Gambling Losses

Before 2018, gambling losses to the extent of gambling income were deductible as part of miscellaneous itemized deductions. Plus, professional gamblers could deduct their business expenses. If this created a loss, then it could be claimed. Now there is no allowance for business expenses for a professional gambler. There is also no longer any allowance for business expenses creating a tax loss.

8. Hobby Deductions

Prior to 2018, you could deduct hobby expenses as part of miscellaneous itemized deductions subject to the 2%-of-AGI threshold. Now hobby expenses cannot only be deducted if they are part of the cost of sales.

9. Home Mortgage Interest

With the old law, you could deduct interest payments on up to $1 million in debt to buy a home and up to $100,000 of home equity interest. For tax years 2018-2025 you can deduct interest payments on up to $750,000 to buy a home after December 14, 2017. You can continue to deduct $100,000 of home equity interest as long as the funds were used to buy, build or substantially improve the home.  This means you cannot deduct home equity interest used to purchase an RV, pay for a car or education expenses.

10. Itemized Miscellaneous Deductions

Before 2018, itemized miscellaneous deductions exceeding 2% of AGI were deductible. This included unreimbursed employee expenses, tax prep fees, investment fees, uniform costs, union dues, etc. With the new law, these are no longer deductible.

11. IRA Recharacterizations

Prior to 2018, you could recharacterize a Roth IRA conversion back to a traditional IRA if completed by October 15 of the year in which the tax return was filed. However, with the new law, you may no longer recharacterize a Roth IRA conversion back to a traditional IRA.

12. Qualified Improvement Property

The old law allowed improvements to be deducted over 15 years and permitted them for bonus depreciation. The new law failed to make bonus depreciation available for qualified improvement property. However, it did enable Section 179 deductions for such property.

13. Section 179 Deductions

Before 2018, the maximum deduction for qualifying property was $510,000. Phaseout of this write-off began at $2.03 million. Now the maximum deduction for qualifying property is $1 million! Yes. That’s pretty much doubled. The phaseout for this now begins at $2.5 million. Qualifying property for section 179 includes both used and new property.

14. State Tax Deduction

Prior to 2018, state tax deductions as part of Itemized Deductions on Schedule A were unlimited. Now state tax deductions as part of Schedule A are capped at $10,000.

15. Transportation Fringe Benefits

The old law allowed this benefit to be tax-free to employees and tax-deductible to employers. The new law allows this benefit to remain tax-free to employees, but employers no longer get to take this deduction.

16. Vehicle Deductions

Prior to 2018, bonus depreciation was 50% and luxury auto limits began at $11,160. This meant a $40,000 vehicle would take 19 years to depreciate. You read that right. 19 years! What vehicle truly lasts 19 years?

With the new law, bonus depreciation is 100%! That’s pretty helpful for anyone buying a new business vehicle. Also, luxury auto limits don’t begin until $50,000. Now a $40,000 vehicle takes only six years to depreciate. That’s much more reasonable, right?

17. Vehicle Trade-In

Before 2018, a tax-free exchange was allowed for personal property including business vehicles, airplanes, equipment and collectibles in addition to real property. This tax-free exchange is called a 1031 exchange. Now 1031 exchanges are only permitted for real property.

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Hi! I’m Heather Ryan, EA and I live full-time in an RV with my husband and two dogs. As a full-time digital nomad, I understand many of the unique tax situations created by travel. I also fully support entrepreneurs and the struggles they face. The goal of this site is to offer my knowledge through advice and tips to real-life situations and questions.

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This website is for general information only and is not intended to substitute for obtaining legal, accounting or financial advice. It is not rendering legal, accounting or other professional advice. Presentation of the information on this website is not intended to create a client relationship. For specific tax assistance please consult a tax professional on an individual basis.

While I make every effort to furnish accurate and updated information, I do not guarantee that any information contained in this website is accurate, complete, reliable, current or error-free. I assume no liability or responsibility for any errors or omissions in its content.