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22 Things Tax Experts Wish You Knew About the New Tax Law

tax-information-jerry-jones-cpa-expert-adviceWHEN THE CHANGES GO INTO EFFECT

The new tax law known as the Tax Cuts and Jobs Act (TCJA) lowers individual tax rates (here is an outline of the new tax bracket system) and increases many tax deductions and credits available to many Americans. However, the next time you file your taxes, you will be doing so based on the current law, Grapeson M. Wilson, CPA, MBA, has clarified to Reader's Digest. This can't be emphasized enough because 78 percent of Americans polled by Liberty Tax were at least slightly concerned about tax reform affecting their 2017 tax return, according to Liberty's Director of Compliance, Brian Ashcraft.

THE STANDARD DEDUCTION DOUBLES

One of the fundamental principles of our tax system is that your 'taxable income' is not your actual income but your actual income LESS either:

a standard deduction

OR

the total of all of your itemized deductions

The standard deduction is a fixed amount, and the TCJA nearly doubles it, says Josh Zimmelman, owner of Westwood Tax & Consulting. That means you can deduct $12,000 right off the top of your actual income before you even begin computing your taxes. For married-filing-jointly taxpayers, it's $24,000. Don't miss these things your tax accountant isn't telling you.

FIGURING OUT YOUR TAXES COULD BE SIMPLER

Thanks to a higher standard deduction, you may not need to itemize—which is way more complicated. 'It's a win for simplicity,' notes Jason J. Howell, CFP. In addition, the TCJA reduces or eliminates some of the existing itemized deductions; it also allows for additional deductions to be taken by those who don't itemize—you'll learn more about this below. The net effect, according to Wilson, is some taxpayers will stop itemizing, and filing will be simple enough to do without an accountant.

ITEMIZING? WATCH FOR THE CAP ON STATE AND LOCAL TAX DEDUCTIONS

Currently, taxpayers who itemize their deductions can reduce taxable income by deducting the state and local income taxes (SALT) they pay (for example, real estate taxes). The SALT deduction still exists under TCJA, but only up to $5,000 for single filers and $10,000 for those married and filing jointly, according to Wilson.Need some comic relief? Check out these really funny tax jokes.

THERE'S A NEW CAP ON MORTGAGE INTEREST DEDUCTION

This will be the last year itemizers can deduct mortgage debt interest up to $1,000,000, attorney Brian Pendergraft, tells Reader's Digest. Under the TCJA, you'll be capped at $750,000.Here are surprising costs every new homeowner should know.

YOU WON'T BE ABLE TO DEDUCT MOVING EXPENSES

The current law allows itemizers to reduce your taxable income by deducting the cost of moving from one residence to another. Next year, this deduction will only be available to members of the military. (Even more reason to watch out for these moving scams).

YOU CAN NO LONGER DEDUCT BIKE-COMMUTING EXPENSES

The current law allows those who itemize their deductions to reduce their taxable income by deducting the cost of commuting by bicycle. That's kind of a bummer considering all the health benefits of commuting by bike.

YOU WON'T BE ABLE TO DEDUCT DISASTER COSTS

Itemizers who suffer losses as result of an uninsured disaster like a fire or flood can no longer recoup some of the expense through tax deductions. One loophole: If the government officially deems the event a national disaster.

NO ALIMONY DEDUCTION

The current law allows those who itemize their deductions to reduce their taxable income by deducting the cost of any alimony they pay to a former spouse. For couples who sign their divorce papers after December 31, 2018, this deduction will no longer be available under the TCJA. Don't miss these 15 things divorce lawyers want everyone to know.

YOU CAN'T DEDUCT TAX PREP COSTS

Itemizers may want to fill out their own taxes next year: The cost of tax preparation is no longer be available under the TJCA. (Of course, if you opt for the standard deduction, you won't need professional assistance.) If you still need help, check out these sources for free tax preparation.

GIVE MORE TO CHARITY!

Under the TCJA, taxpayers who still choose to itemize can reduce their taxable income by deducting their charitable expenses—up to 60 percent of taxable income (it was 50 percent), according to CPA and author, Tom Wheelwright. But please note, however, that you can't use this deduction to buy seats at college sporting events, according to Clarence Kehoe, partner and leader of the Tax Department at Anchin, Block and Anchin.

NEW BUSINESS DEDUCTIONS

Wheelwright explains to Reader's Digest that taxpayers who still choose to itemize can reduce their taxable income by deducting the cost of all new and used business equipment (including HVAC and alarms for rental properties). Business owners can also deduct all research and development expenses.

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