Mon. Jan 25th, 2021

The Tax Cuts and Jobs The 2017 act made major changes to the tax code and was a mixed bag for some households. whereas Standard deduction Almost doubled and child tax credits increased, many other deductions and credits were eliminated.

Not much is changing for the 2020 tax year though. “There is a lot of confusion about the stimulus package,” says Grig Hammer, president of Financial in Shereville, Indiana. However, the provisions of the Coronavirus AIDS, Relief and Economic Security (CARES) Act should not affect tax cuts for consumers. People should not have to worry about government incentive payments. “Essentially, the intention was to give money to people,” according to Hammer.

While some significant tax breaks may return after parts of the tax law expire in 2025, here are 12 tax cuts that disappeared in 2018 and will not be available this spring:

  • Standard $ 6,350 deduction.
  • Personal Discount.
  • Unlimited state and local tax deduction.
  • A $ 1 million mortgage interest deduction.
  • An Unrestricted Deduction for Home Equity Loan Interest.
  • Deductions for unchanged employee expenses.
  • Miscellaneous itemized deduction.
  • Deductions to cut expenses.
  • Unrestricted accidental loss deduction.
  • Sustenance allowance deduction.
  • Cut to some school donations.
  • Charitable donations deducted for some taxpayers.

1. Standard $ 6,350 deduction

Some of the best news from the tax reform legislation was the increase in the standard deduction. “The overall effect of the tax reform was that most taxpayers were better off using the standard deduction rather than meeting their deductible expenses,” says Daniel Lagis, managing director of Creative Financial Solutions in Southfield, Michigan.

While single taxpayers were only eligible for the $ 6,350 standard deduction in 2017, the amount almost doubled to $ 12,000 in the 2018 tax year. For the 2020 sawdust, the standard deduction for individuals is rising to $ 12,400 even more. Married couples when they receive a standard deduction of $ 24,800 File form This spring, and the heads of domestic filmmakers are entitled to a cut of $ 18,650.

“Those who are eligible for the (itemized) deduction have actually fallen,” says Timothy McGrath, managing partner of Chicago-based Riverpoint Wealth Management. Unless there is a homeowner with a significant mortgage interest, a standard deduction will have more tax savings than the item.

2. Personal Discount

The increased standard deduction was welcome news for many households, but the trade-off was. This eliminated previously allowed deductions and personal exemptions for Taxpayers and Dependents, Says Lagness.

While not technically deductible, the exemption allowed taxpayers to withdraw $ 4,050 from their taxable income for each dependent they claimed, so ending it is a significant loss for families. The increased standard deduction helps soften losing personal discounts, but may not fully make up for it.

3. Unlimited state and local tax deduction

State and local taxes have long been one of the greatest writings for itemizing deductions. Known by the familiar SALT, they can still be deducted but capped at $ 10,000 per year. This limit is particularly harmful to people living in states such as California and New York, which both have above-average state income tax and property tax rates. “There are a lot of high earners who aren’t taking much of a cut with a cap of $ 10,000 per year,” says McGrath.

4. $ 1 Million Mortgage Interest Deduction

Another change that inconsistently affects those living in states such as California and New York is a restriction on the amount of mortgage interest that can be deducted. In 2017, married taxpayers can deduct interest on mortgages of up to $ 1 million. Starting with the 2018 tax year, only interest on mortgage values ​​of up to $ 750,000 is now deductible.

5. Unrestricted deduction for home equity loan interest

The Tax Cuts and Jobs Act also eliminated unlimited interest deductions for both new and existing home equity loans. Homeowners were able to deduct interest for loans taken for any purpose, such as debt consolidation or travel. Now, only interest on home equity loans used to make home improvements are eligible for the deduction. Also, the combined total of first mortgage and home equity loans for married couples cannot exceed $ 750,000.

6. Deduction for Unchanged Employee Expenditure

A worker who made unchanged purchases related to his job was able to cut the amount in 2017 by more than 2% of his adjusted gross income. “(Some activists) says Paul Axberg, a CPA and president of.” Exberg Wealth Management, an Arizona-based tax, financial and retirement planning firm.

However, taxpayers will not see the deductions available on their 2020 tax returns. To compensate for the loss of the deduction, workers instead want to negotiate reimbursement from their employers.

7. Miscellaneous itemized deductions

Unpublished work expenses are one of several miscellaneous items that have been withheld under the tax reform law. Other disappearing miscellaneous deductions include fees for financial services, costs related to tax preparation services, investment fees, professional dues and a long list of other items already approved.

Many of those who are independent contractors can deduct items as business expenses on Schedule C. This means people who work or perform in the gig economy freelance work May still be able to claim a cut in these expenses. However, the IRS has specific rules that qualify as an independent contractor, and these workers must also pay self-employment taxes. Check with the tax professional for details and to determine what makes the most financial sense for your situation.

8. Deduction for moving expenses

If you moved to a new job last year, forget it Cut down on your moving expenses From their 2020 taxes. The deduction has been abolished for almost all workers. Only military members who are required to transfer for a new assignment are now eligible for the deduction.

9. Unrestricted Accidental Loss Deduction

Starting in 2018, only in areas with presidential disasters, there can be accidental losses on their tax forms. For example, if your house burns down, but insurance does not cover all your costs, you cannot write off the losses from your federal taxes.

10. Alimony deduction

In the past, couples could establish alimony agreements that would allow the paying person to withdraw that money from their federal taxes. While divorce agreements have been finalized before December 31, 2018, they can continue to pay alimony, this will not be an option for anyone whose separation was completed after that date.

Under the new tax law, alimony by the recipient is no longer considered taxable income, so not only is it deductible by the payer, but people can no longer deduct any legal fees related to the alimony allowance agreement. Who divorced in 2020 To avoid nondeductible alimony, seek to find another way to compensate a spouse, such as through the gift of an IRA.

11. Deductions for some school donations

Some colleges and universities require alumni to donate before they are able to purchase season tickets. Prior to 2018, those donations were tax-deductible. While the sporting season was cut due to an epidemic in 2020, anyone who donated for the right to buy tickets should be aware that the deduction is no longer available under the Tax Deductions and Jobs Act.

12. charitable donation deduction for some taxpayers

Deductions for charitable gifts have not been eliminated, but they have become harder for people to claim. The CARES Act allows everyone to have one $ 300 deduction For cash charitable donations in 2020. However, to cut anything above, taxpayers will need to itemize the deduction, some now due to an increase in the standard deduction.

For those who can itemize, the good news is that they can donate and deduct a higher percentage of their income. “You can give up to 100% of your income and deduct it all,” says Exberg. Previously, people were limited to deducting up to 60% of their adjusted gross income, but that limit was temporarily removed by the CART Act.

McGrath says, “I think a lot more planning is being done right now. Those who don’t have enough deductions for warranting on an annual basis want to think about them strategically Donation. An alternative would be to donate in a year rather than spreading the gifts over several years. Another charity-giving fund is to be created. This will allow you to make a larger, deductible contribution in one year, but then remove charitable gifts from the fund over several years.

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