Changes to standard and itemized deductions under the Tax Cuts and Jobs Act

The Tax Cuts and Jobs Act (TCJA) is the biggest tax reform development since 1986. Within it are sweeping changes to standard and itemized deductions. The standard deduction has nearly doubled from $6,350 to $12,000 for single filers and from $12,700 to $24,000 for married filers; therefore we will see a large reduction in those who itemize their deductions. The drawback of this increase is that the exemption deduction has been eliminated. In 2017 a taxpayer received a $4,050 deduction for each individual listed on the tax return. To help offset this elimination, the child tax credit has been increased from $1,000 to $2,000.

Here are some of the other changes:

  • State and local income, sales and property taxes are capped at $10,000. Be sure not to confuse this with taxes that you previously deducted on Schedules C, E or F. These are still fully deductible on those schedules. 
  • Casualty and theft losses are no longer deductible, except for losses in federally declared disaster areas. 
  • Misc. itemized deductions in excess of 2% AGI are no longer deductible. These include tax prep fees, safety deposit box charges, investment fees, and unreimbursed employee expenses such as union dues and travel costs. 
  • Mortgage interest deductions are now being limited to acquisition debt of $750,000 or less (previously $1,000,000). Home equity loan interest is not deductible unless used for remodeling.
  • There originally was a threat of gambling loss deductions being eliminated, however this is staying in place to the extent of winnings.

Charitable giving is expected to take a big hit. Due to the increased standard deduction, the Tax Policy Center estimates the number of households being able to claim charitable giving will reduce from 37 million to 16 million. Below are a couple strategies to still be able to “deduct” your charitable giving: 

  • First, individuals age 70½ and older can utilize their required minimum distributions from their IRA’s by having these funds transferred directly to your charity of choice. These distributions will not be taxable income to you as they would be otherwise.
  • Secondly, you can gift grain to your charity of choice. Like the IRA’s, this will directly reduce your taxable income. In addition, there will be no self-employment tax on the amount gifted. In order to achieve this deduction, the commodity must be put into the name of the charity when it is delivered to the elevator and a warehouse receipt should be issued in the name of the charity.

The TCJA will bring forth many changes to your 2018 tax return. Be sure to contact your AgCountry Tax Specialist with any questions and for all your tax planning needs.

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    Trudy Mickelson
    Assoctiate Tax Specialist