Tax tips: What happened to deductions?

November 20, 2018|Matthew Prentice

Learn how the Tax Cuts and Jobs Act brought changes to tax deductions, and consider how you might need to adjust your tax strategy.

With the new tax laws taking effect in 2018, there have been some major changes to the itemized deductions you may have been able to take in the past. Under the new law the standard deductions increased from $13,000 to $24,000 for married filing jointly filers and from $6,500 to $12,000 for single filers. Personal exemptions are also now gone. With the increase in the standard deduction, there are some itemized deductions that have changed.

Changes to itemized deductions

One of the biggest changes to the itemized deductions is how much you can deduct for state and local taxes, which include your state withholdings and real estate taxes. Under the new tax law, you are limited to only $10,000 combined between both state and local taxes. Taxpayers that have large amounts of state income taxes or have multiple real estate holdings not used for business will be among those most affected.

For example, if you had $20,000 withheld for state taxes from your paycheck and you paid $8,000 for your house's property taxes, only $10,000 of the $28,000 would be deductible. In the past, the whole $28,000 would have been deducted.

Be aware of other changes to the tax code

Under the new tax law, you are no longer allowed to take miscellaneous deductions such as investment fees, tax preparation fees, or unreimbursed employee expenses. In the past, these deduction needed to be more than 2% of your Adjusted Gross Income (AGI) before you received any deductions, but now under the new tax law, you are no longer able to receive any deductions. In particular, these changes affect taxpayers with large amounts of investment fees, which usually put them over the 2%.

Also gone is the deduction for alimony/maintenance for divorces after December 31, 2018. If for some reason you are looking to file for divorce in early 2019, you may want to consider filing a separation agreement before the end of 2018. This would allow you to stay under the older tax laws and take the deduction for alimony paid.

What will you be able to deduct?

You’ll still be able to receive deductions for medical expenses, mortgage interest paid and gifts to charity. Note that the threshold dropped from 10% to 7.5% for any medical expenses in excess of your AGI. The mortgage interest is limited to underlying indebtedness of up to $750,000 on mortgages started after January 1, 2017, which dropped from $1 million.

So with all these changes, what are some tax planning opportunities to consider?

In order to itemize you’ll need to have enough deductions to get over $24,000. Assuming you’ll have $10,000 in state and local taxes, you’ll still need to cover $14,000. This could be done as a combination of mortgage interest or gifts to charity. You may want to consider doubling your gifts to charity in one year, or making use of a donor advised fund. This may boost your deduction over the standard deduction and allow you to receive a tax benefit for your contributions.

Are you withholding enough?

With the new tax laws, the tax brackets have changed and you likely won’t be paying as much in taxes compared to prior years. But not only did the tax brackets change, so did the tax withholding tables. The tax withholding tables are used to determine how much tax is withheld on your paycheck.

You may have noticed in February 2018 that your net pay increased due to these tax withholding table changes. It’s nice to have seen this bump in pay, but you may pay for it come April! With the decrease in withholding from your paycheck, check to be sure you’re having enough withheld to cover your tax liability come April when your tax return is due. If you haven’t evaluated your withholding amounts, you may want to do that before the end of the year, otherwise you could be assessed under-withholding penalties.

View the resources available at irs.gov that can help you determine the amount of allowances you should be taking.

For assistance looking at your tax strategy, contact us or reach out to Matthew Prentice, CPA, or another member of Schenck’s Dental Advisory Group at 800-236-2246.


Matthew Prentice, CPA, is a supervisor with the Health Care team at Schenck. With nearly five years of experience, he specializes in providing tax, financial reporting and assurance services for health care organizations.



Tags: Tax