We all know the Tax Cuts and Jobs Act is complex. That’s why I try to keep it simple.
1. 199A Deduction
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?