tax deduction

6 Tax Deductions That Went Extinct in 2018

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The Tax Cuts and Jobs Act of 2017 was called one of the largest tax overhauls in 30 years. It went into effect at the beginning of 2018, which means taxpayers are starting to feel the impact now. Some households will benefit from it, others will not. Here are some deductions that have been eliminated or reduced.

Moving Expenses
Unless you or a spouse is in the military and is currently on active duty, you won’t be able to take any deductions for moving. In the past, those who moved for a job and paid the moving cost could deduct most of their expenses.

Personal Deductions
Deductions for personal exemptions, which can be worth $4,050 for each exemption, were eliminated and replaced with a larger standard deduction and an expanded child tax credit.

Paying Alimony
If you’re paying alimony on a divorce finalized before December 31, 2019, then you can deduct those payments one last time.

Unreimbursed Job Expenses
This fell into the category of miscellaneous itemized deductions, an area that has been greatly reduced by the latest tax laws. It means that anything an employee pays for while on the job and doesn’t get reimbursed for, is not deductible.

State and Local Taxes
You used to be able to fully deduct any amount of state or local taxes. Now that cap is set at $10,000 meaning those with high state income and property taxes will get much less back.

Tax Preparation Fees
Tax preparation fee deductions were eliminated as part of the miscellaneous fees. This is will occur from 2018-2025. That means you cannot deduct payments to accountant, tax prep firms, or tax preparation software.

Deducting transgender medical expenses

Westchester NY accountant Paul Herman of Herman & Company CPA’s is here for all your financial needs. Please contact us if you have questions, and to receive your free personal finance consultation!

By Bankrate

Bruce Jenner has a new life as Caitlyn Jenner. She revealed her new look this week on the cover of Vanity Fair magazine.
taxes-blog-deducting-transgender-medical-expenses

It’s the most followed male-to-female transgender case since Army Pvt. Bradley Manning, who was sentenced in July 2013 to 35 years at Fort Leavenworth for Espionage Act violations in connection with Iraq war material sent to the WikiLeaks website. A month after that conviction, Manning announced she is transgender and would be living as a woman named Chelsea.

Manning’s situation raised another issue. Would the U.S. government pay for Manning’s physical transition from man to woman? The answer, ultimately, was yes. Earlier this year, the U.S. Army finally began paying for federal inmate Manning’s hormone treatments.

Jenner, thanks to the wealth she’s accumulated as an Olympic champion and more recently as a reality television star as part of the Kardashian family, is financially able to cover her gender transition costs, from hormone therapy through the final surgeries.

But the matter of Uncle Sam’s involvement still is relevant, thanks to the Internal Revenue Code and a 2010 U.S. Tax Court decision.

Gender transition medical issues

Gender identity disorder is listed in the American Psychiatric Association’s Diagnostic and Statistical Manual of Mental Disorders. Since it is a recognized medical condition, costs for treatment — that is, transitioning from one gender to another — are allowable medical tax deductions.

This was confirmed in 2010, when the IRS lost a Tax Court case in which a taxpayer deducted transgender medical costs. The court ruled that necessary treatment for gender identity disorder qualifies as medical care under the tax code, making the costs related to that care tax deductible.

The IRS followed with its own announcement on the court ruling in late 2011.

No tax judgment, just IRS rules

While such procedures attract a lot of attention, both in support for and opposition to transgender issues, tax law isn’t judgmental. All that matters is that the costs meet tax code requirements.

As noted, the first hurdle is that the treatment be medically necessary. That’s an issue for all patients and their physicians to determine. They also must be prepared to prove any therapeutic need if the IRS questions deductions.

Once that’s done, then the patient must itemize the deductions.

Shifting medical thresholds

But there is another consideration on Schedule A. The write-offs also must meet a threshold.

For younger taxpayers, all itemized medical expenses must exceed 10 percent of the patient/taxpayer’s adjusted gross income in order to be claimed.

Jenner, however, is eligible for a bit of a break. She turned 65 last October. Filers age 65 or older are allowed to deduct qualifying medical expenses that exceed 7.5 percent of their adjusted gross income. That rule is in effect through 2016.

While Jenner is estimated to be worth $100 million, much of that amount likely is from real estate holdings, so she might have annual income low enough to make at least some of the medical costs deductible. A check of a Philadelphia specialist’s price list for male-to-female transgender surgeries came to $140,450. Hollywood doctor costs are likely to be even higher.

Of course, I suspect that Jenner has some type of health insurance that will pay for part of the costs. Only uninsured and other out-of-pocket medical costs can be counted as medical deductions.

For the rest of us, regardless of whether we have literal life-changing medical expenses like Jenner or simply run-of-the-mill medical costs, it’s always worth checking on possible help via the tax code.

Herman and Company CPA’s proudly serves Bedford Hills NY, Chappaqua NY, Harrison NY, Scarsdale NY, White Plains NY, Mt. Kisco NY, Pound Ridge NY, Greenwich CT and beyond.

Midyear Tax Planning Ideas

Westchester NY accountant Paul Herman of Herman & Company CPA’s is here for all your financial needs. Please contact us if you have questions, and to receive your free personal finance consultation!

 

mid-year-tax-planning

Tax planning is a year-round process, so now is a good time to think about the following:

Are you considering making a cash gift to a relative? If so, consider making the gift in conjunction with the overall revamping of your stocks and mutual funds held in taxable brokerage accounts to achieve better tax results. Don’t gift loser shares (currently worth less than you paid for them). Instead, sell these shares, recognize the capital loss on your tax return, and then gift the cash proceeds to a relative. However, do gift winner shares to lower tax bracket relatives (unless they are under age 24 and subject to the Kiddie Tax). The 2014 annual gift tax exclusion is $14,000.

Are you considering making a contribution to a favorite charity? The previous strategies will also work well for contributions to qualified charities. Sell loser shares, recognize the loss on your tax return, and then give the cash proceeds to the charity and claim the resulting charitable contribution (if you itemize). Donate winner shares to the charity and deduct the full current fair market value at the time of the gift (without being taxed on the capital gain). The tax-exempt organization can sell your donated shares without owing tax.

Are you self-employed? Consider employing your child in the business (but pay a reasonable wage for their age and work skills). This practice can shift income (which is not subject to the Kiddie Tax) to the child who is normally in a lower tax bracket, decrease payroll taxes, and enable the child to contribute to an IRA.

Is your estate plan current? If you already have an estate plan, it may need updating to reflect the current estate and gift tax rules. For 2014, the unified federal gift and estate tax exemption is a generous $5.34 million, and the rate is 40%. Furthermore, the impact of the Supreme Court’s Windsor decision and resulting IRS changes in the federal definition of marriage mean that legally married same-sex couples need to revise their estate plan. Plus, there may be nontax reasons to update your estate plan.

Please contact us to discuss any tax planning strategies you are interested in implementing.

Herman and Company CPA’s proudly serves Bedford Hills NY, Chappaqua NY, Harrison NY, Scarsdale NY, White Plains NY, Mt. Kisco NY, Pound Ridge NY, Greenwich CT and beyond.

Any U.S. tax advice contained in the body of this website is not intended or written to be used, and cannot be used, by the recipient for the purpose of avoiding penalties that may be imposed under the Internal Revenue Code or applicable state or local tax law provisions.