Alliance Financial & Income Tax is a veteran-owned and operated income tax and financial services business in Blue Springs, Missouri. We have been helping families and small businesses in the Kansas City area with their taxes and finances since 2002.
The
Tax Cuts and Jobs Act includes changes to moving, mileage and travel expenses: Move-related
vehicle expense The new
law suspends the deduction for tax years beginning after Dec. 31, 2017, through
Jan. 1, 2026. During the suspension, no deduction is allowed for use of an auto
as part of a move using the mileage rate listed in IRSNotice 2018-03. This does
not apply to members of the Armed Forces on active duty who move related to a
permanent change of station. Unreimbursed
employee expenses The Act
also suspends all miscellaneous itemized deductions subject to the 2 percent of
adjusted gross income floor. This change affects unreimbursed employee expenses
such as uniforms, union dues and the deduction for business-related meals,
entertainment and travel. For
additional guidance, see IRS
Notice 2018-42. Standard
mileage rates for 2018 The
standard mileage rates for the use of a car, van, pickup or panel truck for
2018 remain:
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.
Increased
depreciation limits The
recent legislation also increases the depreciation limitations for passenger
autos 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. For
additional details, see the May 25, 2018 IRS news release: Law
change affects moving, mileage and travel expenses.
Most Americans are finished with income taxes for the year, having completed and filed their returns under the old rules.
But now, a bunch of new rules have taken effect, thanks to the reform legislation enacted late last year. Affected taxpayers would be wise to brush up on the details, as several key provisions already have become sources of potential confusion.
According to one survey released in April, 13 percent of consumers hadn't even heard of tax reform, and others were confused about the impact of key provisions — all of which make it harder to plan ahead.
Here are some of the myths and misconceptions of tax reform to which experts are pointing:
1. Myth: Tax reform will make filing returns a lot easier
Simplification was a major goal of tax reformers, and the new rules will make things easier for some filers. In particular, an estimated one in five taxpayers will switch from itemizing to taking the standard deduction. These people no longer will need to hang onto charitable-donation receipts and other paperwork.
However, not everyone will find tax-return filing to be any simpler, especially those who continue to itemize.
"Overall, the legislation was not simplifying," said Mark Luscombe, a tax analyst with Wolters Kluwer Tax & Accounting. "The only thing you can point to is the increased standard deduction."
In addition, there are some new provisions that taxpayers will need to learn about. Among them is a new 20-percent deduction, a tax-shaving break for people who own "pass-through businesses."
This provision "will require complex calculations that have never existed in the past," said LBMC, a Tennessee company that provides accounting and other services.
There's also a lingering lack of clarity regarding which business owners can take advantage of this deduction and other details, Luscombe said.
In addition, the reform law didn't simplify other potentially complex areas, such as sorting through capital gains/losses or assessing eligibility to make deductible contributions to Individual Retirement Accounts.
2. Misconception: Mortgage interest no longer is widely deductible.
Actually, mortgage interest will remain deductible for the majority of homeowners.
The new law did change the rules so that mortgage interest now only can be deducted on up to $750,000 in debt (on your primary home and one additional dwelling).
But that's still enough to cover loans on most U.S. homes, where the median price is near $246,000, according to the National Association of Realtors ($261,000 in metro Phoenix).
Besides, many buyers make substantial down payments of 20 percent or more, thus taking out smaller loans.
At any rate, this restriction applies only to newer loans taken out after Dec. 14, 2017, noted Tim Steffen, director of advanced financial planning for Baird Private Wealth Management.
"Any loans in place prior to then are still subject to the (previous) $1-million debt limit," he said. "So if the interest on a loan was deductible in 2017, it will likely still be deductible in 2018."
3. Myth: Borrowers no longer can deduct interest on home equity loans
For many people with home-equity loans, the interest deduction was eliminated. But some borrowers still will be able to make use of this tax break. It really boils down to how loan proceeds are used.
As long as the borrowed amount is used to buy, build or substantially improve a home, the interest remains deductible, said Steffen.
But if the proceeds are used to buy a vehicle, pay off other debts (such as credit-card balances) or for other, non-housing purposes, then the interest is no longer deductible.
"This means that borrowers will need to carefully track the use of their home-equity loan proceeds in order to maintain the tax deduction," he said.
4. Myth: Reform means parents no longer will receive tax breaks for their kids.
The personal exemption was repealed, which means there's no longer a $4,050 deduction for a spouse and each dependent, noted Steffen. However, the newly expanded child tax credit will help to offset that.
The tax credit for children under age 17 has doubled to $2,000, plus there's a new $500 credit for other dependents. "So older kids or even your parents who are dependents can qualify for a new credit," Steffen said.
Also, the income levels for eligibility have risen dramatically, meaning many additional families will benefit. For many households, "The new credits will more than offset the loss of the deduction," Steffen said.
5. Misconception: Federal tax reform doesn't affect state income taxes.
Not quite. Most states including Arizona base their own income-tax systems on the federal tax code almost entirely or use it as a starting point. So the drastic changes at the federal level could affect some of these states and the taxes their residents pay.
Reform will broaden the federal tax base, subjecting more personal income to taxation, by eliminating various deductions and exemptions. Congress largely offset this by cutting federal tax rates.
But so far, most states haven't yet cut their own rates or made other adjustments. Unless they do, "Most states will experience a revenue increase" and residents of those states will pay more, the Tax Foundation predicted.
"The vast majority of filers will receive a tax cut at the federal level, but they could easily see a state-tax increase unless states act to prevent one," the group said.
In particular, federal tax reform eliminated the personal exemption but increased the standard deduction. Yet "eliminating the personal exemption broadens the tax base considerably more than raising the standard deduction narrows it," subjecting more income to taxes, the Tax Foundation said.
Thus, it will be important for people to monitor what actions, if any, their state legislatures take.
Reach the reporter at russ.wiles@arizonarepublic.com or 602-444-8616.
If you have questions regarding your specific situation, please contact our Blue Springs tax office at 816-220-2001
Mike Mead, EA, CTC
Alliance Financial & Income Tax
807 NW Vesper Street
Blue Springs, MO. 64015
P - 816-220-2001 x201
F - 816-220-2012 AFITOnline.com
