The Tax Cuts and Jobs Act (TCJA) eliminates write-offs for miscellaneous itemized expenses that were previously subject to the 2%-of-adjusted-gross-income (AGI) deduction threshold. That meant your total miscellaneous expenses had to exceed 2% of AGI or you got no write-off. If they did exceed the threshold, you could only deduct the excess.
Because most folks did not have enough miscellaneous expenses to exceed the 2%-of-AGI deduction threshold, this now-disallowed write-off never got much attention. However, if you are among those who could benefit, there are three expenses most likely to have greatest impact:
Unreimbursed Employee Business Expenses. A common unreimbursed employee business expense is the cost of using your own car for business-related travel. This expense is no longer deductible. Another commonly used deduction was for expenses related to education that maintains or improves skills used in your current job or profession. For example, the cost to obtain an MBA degree would often qualify.
Tax and Investment Related Expenses. Expenses that can no longer be written off as miscellaneous itemized deductions include fees and expenses incurred in connection with tax preparation and advice, or investment management and planning advice. These are incurred by many and could be significant enough to get you over the prior-law 2%-of-AGI deduction threshold when combined with other miscellaneous itemized expenses under the old rules.
Hobby-Related Expenses. The old rules allowed hobbyist’s to treat hobby-related expenses up to the amount of income from the hobby as a miscellaneous itemized deduction. These expenses were often big enough to clear the 2%-of-AGI deduction threshold when combined with other miscellaneous itemized expenses. Under the new law, as under prior law, you still have to report 100% of hobby income on your return. However, beginning in 2018, you can no longer deduct any of your hobby-related expenses.
The bottom line is that the new tax law giveth and the new tax law taketh away. For most individuals, the giveth comfortably exceeds the taketh away, but it’s not all good news for everybody.
Changes to the tax code under the new Tax Cuts and Jobs Act will impact virtually every aspect of tax filing, including all sorts of formerly allowable deductions. As your tax professional, Capital Advisory Group Inc. is up to date on all these changes so that you can be assured the best possible tax strategy advice and preparation, whether you’re filing as an individual, a sole proprietor, or a corporation. Give us a call today at 636-394-5524 and let us help guide you through the complexities of these new rules.
Capital Advisory Group Inc. | 119 Old State Road, Ellisville, MO 63021 | info@CapitalAdvisoryGrp.com