Individual Itemized Deductions

Tax Cuts & Jobs Act- Individual Itemized Deductions- Sandra Orcutt, EA Supervisor

Since the Standard Deduction has increased to $12,000 for single filers and $24,000 for married couples, you must have itemized deductions greater than these amounts in order to file your Schedule A and itemize your tax return deductions.  Traditionally approximately 30% of taxpayers have itemized deductions because their total itemized deductions were greater than the standard deduction.  However, the new Tax Cuts and Jobs Act of 2017 eliminates or restricts many itemized deductions beginning in 2018 and raised the standard deduction.  That means that fewer taxpayers are likely to itemize.  Let’s go through each itemized deduction for 2018:

Medical:  Medical itemized deduction has temporarily improved.  For 2017 and 2018, the threshold for deducting medical expenses reverts to 7.5% of Adjusted Gross Income.  This means that you must have qualified medical expenses over 7.5% of your Adjusted Gross Income for this medical expense to qualify.  The expenses must be primarily to alleviate or prevent a physical or mental defect or illness, including dental and vision.  This amount will be shown on Schedule A of your Form 1040.

State and Local Taxes State and Local taxes remain deductible but are now limited to $10,000 ($5,000 MFS) annually for ANY combination of state and local property taxes or state and local income taxes or sales tax.  Examples:  If you own your home, you can deduct the real estate taxes paid for 2018.   You can also deduct the amount of taxes paid for your state income taxes and sales tax.  This amount can be deducted on your Schedule A but limited to $10,000.  In 2017, there was no cap to this deduction.

Charitable Contributions You can continue to deduct charitable contributions and the amount increases from 50% to 60% of AGI.  However, beginning in 2018, you cannot deduct charitable contributions for payments in exchange for college athletic event seating rights.  Due to the increase in the standard deduction, overall U.S. charitable contributions could decrease if this does not benefit the taxpayer’s tax situation.

Gambling Losses:  This deduction is the same as 2017 and continues to allow a deduction for gambling losses not to exceed gambling winnings.

Personal Casualty & Theft Losses:  This deduction is suspended through 2025 except for casualty losses attributable to a disaster declared by the U.S. President.  In 2017, this deduction was allowed to the extent each loss exceeded $100 and the sum of all losses exceeded 10% of the taxpayer’s AGI.

Tier 2 Miscellaneous Deductions These deductions included employee business expenses, tax preparation fees, investment expenses and certain casualty losses.  This deduction is suspended through 2025.  In 2017, these deductions were subject to 2% of the taxpayers AGI.  This is a big hit to many taxpayers.

Phase-Out of Itemized Deductions:  Itemized deductions were phased-out in 2017 for higher-income taxpayers.  This phase-out is suspended through 2025.

These are just a few changes from the Tax Cuts and Jobs Act that may impact you personally in 2018. If you have any questions or need any additional tax planning we, at Hall, Kistler & Co would be happy to help you!  Give us a call at 330-453-7633 or click on my name above for assistance.

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