Tax filing season is approaching, and it’s important to understand the changes in tax laws that may affect what you can and cannot do. This guide will highlight some key points to keep in mind as you prepare to file your taxes. While certain deductions have been eliminated, there are still exceptions and deductions available for specific circumstances. Let’s delve into what you should be aware of when it comes to tax deductions.
What You Can No Longer Deduct
Employee Expenses: Previously, unreimbursed employee expenses were deductible if they exceeded 2% of your adjusted gross income. However, this deduction is no longer available for most individuals, considering the increased standard deduction and limitations on itemized deductions.
Exceptions to the Rule
Reserves in the armed forces, handicapped individuals with impairment-based work expenses, fee-based state or local government officials, and qualified performing artists can still deduct related expenses using Form 2106 or 2016-EZ. Add the computed deduction to line 11 of Schedule 1 (Form 1040).
What You Can Never Deduct
1. Commuting Expenses: In general, commuting expenses are not deductible unless specific circumstances apply (e.g., the exceptions mentioned above).
2. Lobbying Expenses: Expenses related to lobbying, even if they involve travel to Washington, D.C., are not deductible.
3. Campaign Contributions: Contributions made to political campaigns are not deductible, and expenses related to advertising in convention bulletins, dinners, or programs are considered personal expenses.
4. Fines and Penalties: Any fines or penalties incurred, such as traffic tickets or parking fines, cannot be deducted.
5. Club Dues: Dues for clubs are not deductible, even if business meetings take place there. However, the cost of meals during genuine business discussions may be deductible. Airline clubs are also generally not deductible unless business matters are effectively conducted and documented, allowing for the daily cost of the visit to be deducted.
6. Moving Expenses: With few exceptions (such as military personnel with orders), moving expenses are no longer deductible. Additionally, employers may have to report the moving expenses they paid on your behalf as taxable income.
Deductions that Are Back
1. Medical Expenses: Medical expenses exceeding 7.5% of your adjusted gross income are deductible. This includes various treatments, such as fertility treatments, inpatient alcoholism treatment (including meals and lodging), anti-smoking programs (limited to prescription drugs), and service animals. However, cosmetic surgery, over-the-counter drugs (except insulin), and non-prescription cold remedies are not deductible unless prescribed by a doctor for specific conditions.
1. Gambling Losses: Gambling losses can be deducted, but only up to the extent of your gambling winnings. This means you can deduct losses to offset gambling income.
2. Casualty and Theft Losses: These losses are deductible only for income-producing property, such as rental property, vacant lots, or properties affected by federal disasters. Some losses from trading gold, silver, stocks, bonds, or Ponzi schemes may also qualify for deduction.
3. Home Offices: To claim a deduction for a home office, you must have a business and file Schedule C (for proprietorships and gig workers), Schedule E (for rental property and K-1 recipients actively involved in the business), and/or Schedule F (for farmers).
4. Special Dues: Membership dues for chamber of commerce, boards of trade, business leagues, public service or civic organizations, trade associations, professional societies, and real estate boards are deductible. However, union dues are not deductible as they are considered employee expenses.
As tax filing season approaches, understanding the changes in tax laws is crucial.
While some deductions have been eliminated, exceptions and deductions still exist for specific circumstances. Be sure to gather the necessary documents and consult with a tax professional to ensure a smooth tax filing experience. Stay informed and maximize the deductions available to you.