31 May How the Tax Cuts and Jobs Act impacts deductions
Tax Cuts and Jobs Act made significant changes to how American taxpayers will calculate their taxes in 2019
First, the standard deduction nearly doubles, from $12,700 to $24,000 for married couples and from $6,350 to $12,000 for single filers. In exchange, the reform reduces how and what employees can claim as itemized deductions on next year’ taxes.
Taxpayers can no longer claim deductions for un-reimbursed employee expenses that are subject to the 2 percent of adjusted gross income floor. The suspension went into effect Dec. 31, 2017, and goes through Jan. 1, 2026
This change affects employee expenses such as uniforms, union dues and the deduction for business-related meals, entertainment and travel.
It also means the deduction for moving expenses is also suspended through 2026. No deductions are allowed for use of an automobile as part of a move using the mileage rate listed in Notice 2018-03. This suspension does not apply to members of the Armed Forces of the United States on active duty who move pursuant to a military order related to a permanent change of station.
Mileage and vehicle costs
A taxpayer can deduct mileage if the travel was for medical or charitable purposes or if it was part of employee business expenses. This does not include commuting expenses.
If the mileage qualifies, taxpayers may use either the standard mileage rate using the mileage drive or the actual cost method, which requires receipts for expenses like gas and maintenance.
But the business standard mileage rate listed in Notice 2018-03, which was issued before the Tax Cuts and Jobs Act passed, cannot be used to claim an itemized deduction for un-reimbursed employee travel expenses in taxable years beginning after Dec. 31, 2017, and before Jan. 1, 2026.
One thing that remains is the standard mileage rates for the use of a vehicle.
- 54.5 cents for every mile of business travel driven, a 1 cent increase from 2017.
- 18 cents per mile driven for medical purposes, a 1 cent increase from 2017.
- 14 cents per mile driven in service of charitable organizations, which is set by statute and remains unchanged.
The standard mileage rate for business is based on an annual study of the fixed and variable costs of operating an automobile. The rate for medical purposes is based on the variable costs.
Taxpayers always have the option of calculating the actual costs of using their vehicle rather than using the standard mileage rates. In addition, the business standard mileage rate cannot be used for more than four vehicles used simultaneously.
The Tax Cuts and Jobs Act does increase the depreciation limitations for passenger automobiles placed in service after Dec. 31, 2017, for purposes of computing the allowance under a fixed and variable rate plan. The maximum standard automobile cost may not exceed $50,000 for passenger automobiles, trucks and vans placed in service after Dec. 31, 2017. Previously, the maximum standard automobile cost was $27,300 for passenger automobiles and $31,000 for trucks and vans.
Check IRS.gov for more information about the update to the standard mileage rates, including the details about the suspension of the deduction for operating a vehicle for moving purposes – https://www.irs.gov/pub/irs-drop/n-18-42.pdf.
To see how the Tax Cuts and Jobs Act affects you, contact DVF today to schedule a one-on-one meeting with a member of our team.