Then, the good news for many filers is the nearly doubled standard deduction.  Most tax policy wonks estimate more than half of all Schedule A filers will now happily take the standard deduction for federal purposes.

$24,000         Married/Joint

$12,000         Single and Married/Separate

$18,000         Head of Household

Formerly, you had a deduction, and an exemption.

Your itemized deduction included state income taxes, home mortgage interest and real estate taxes (for up to 2 homes) plus charity, medical (within limitations,) and certain business expenses (within limitations,) among other things.  State and local taxes (SALT) now have a limitation of $10,000.  This applies to your state income taxes, any sales tax, personal property taxes, and real estate taxes.  Limiting this to $10K hurts a lot of people.  However, the powers-that-be felt the new limit contributed to a leveling of the playing field.  We shall see.  I do know a lot of DIY people did not understand Schedule A, and mistakes were very common.

Also changed – you can no longer take a deduction for your investment fees, your tax prep, or your employee business expenses.  Granted, most regular folks never got this deduction because even if they filled out the forms, the amounts did not go over the threshold.  But it was apparently fun trying.

Some people will still itemize!  I expect seniors will still have heavy medical expenses, and some people will still be extremely charitable.  They talked about limiting charity, but they did not do it.  (Yet.)  Some people are reorganizing how they give so as to improve their tax situation.  Example:  Give a whopping amount every second (or third) year so as to itemize, but then slack off to the standard deduction in the off years.

As for that exemption – well, it’s just gone, too.  No more multiplying by all the people you managed to cram into your tax return.  Instead, there is an increased $2000 deduction for each child under age 17, and they’ve added a $500 “Other Dependent Credit” for miscellaneous other dependent relatives.

The forms were restructured.

All people now file on the same Form 1040.  No 1040-A.  No 1040-EZ.

There is rumor of a new form for seniors (1040-SR,) but nobody really knows why.  If both rich and poor non-seniors can file on the same 1040, why can’t rich and poor seniors file on the same 1040.  Maybe 1040-SR will have larger type?  Or bigger spaces to write in?

What happened to the postcard?  Think about it – do you really want your SSN sent by postcard through the mail?  Ted Cruz may be a helluva guy, but this was not a good idea.

Instead, we have 2 half-pages, which are thankfully being printed on 1 side of 1 piece of paper.

The top half is the demographics, in this order:

Your filing status

Your name and SSN

Your spouse’s name and SSN

Your address

Your dependents with SSN, etc

Your signature (and mine)

The second half of the page is a quick recap of your income, and how it’s taxed.

The most basic income information (totals for wages, interest, dividends, IRAs and pensions, and Social Security benefits) comes first.  The rest of the information has been organized into 6 sections, which are called Schedules 1, Schedule 2, Schedule 3, Schedule 4, Schedule 5, and Schedule 6.  (Clever.)  Pretty much all of the forms and schedules we used to file have been coordinated into these 6 schedules, and their totals flow to the second half of the 1040 page.

But some information appears on its own line, with no help from a newly numbered Schedule.  This includes your deduction (standard or itemized,) the new QBID, any withholding totals, and various refundable credits, plus the math.  I think they could have done a better job.

It is interesting to note that they managed to highlight the refund section by putting the word “Refund” in large, bold type, offset to the left, while they downplayed any amount you might owe by using a smaller font and tucking this information at the very bottom.

And did you notice the very first line, up at the top, was your filing status?  Now we know what they’re really interested in.

Tax Reform – Like it or lump it – it’s the law. 

Late December 2017, Congress gave the American people the most far-reaching tax code changes since income taxes were first shoved down our throats created.  They changed forms, rules, and thresholds.  Some cherished provisions were wiped away, and new twists were created.  Some changes are “permanent” while others are “temporary.”  In my opinion, now that congress has a taste for tax-law tinkering, nothing in tax law will ever be permanent, and I fully expect each new administration – state and federal – to take a swipe at it.  Be that as it may, our government is still issuing guidance on various provisions.

And so we begin a series on Tax Reform.  Not everything…just the HIGHLIGHTS that impact my people, and just the broad strokes because if you really want all the details, you may as well read all 400 pages of the Tax Cuts and Jobs Act of 2017, and then move on to the hundreds of additional pages of guidance issued (and still being issued) by the Internal Revenue Service.

Most people just want to know what it means in practice, and so that is our focus.

…when the Employer reimburses the Employee for health insurance costs

This is not a joke.  It is from IRS Notice 2013-54, in reference to a long-held practice whereby employers could simply reimburse employees for health insurance secured directly by the employees.  Prior to 2014, such an arrangement was an acceptable alternative for smaller employers for whom group coverage was impractical.  The employee secured the insurance and the employer either paid the premiums directly, or reimbursed the employee for the premiums.

The tax consequences were favorable.  The employer got a deduction just as if it were regular group health insurance, but the employee did not recognize income.  (A similarly beneficial arrangement was in place for S-Corp owners.)

Review of acceptable medical expenses for tax purposes

It may be hard to go a complete year without spending money for health purposes.  However, not everything we consider “healthful” counts as a medical expense!  Generally speaking, the IRS only considers expenses specifically related to the medical community to be acceptable, and the states follow suit.  That is, joining a gym, taking vitamins, and even putting Band-Aids® on boo-boos are not deductible for tax purposes.

What kinds of expenses count?
In Publication 502, page 2, the IRS defines medical expenses as “the costs of diagnosis, cure, mitigation, treatment, or prevention of disease…and payments for legal medical services rendered by physicians, surgeons, dentists and other medical practitioners…to alleviate or prevent a physical or mental defect or illness.  They do not include expenses that are merely beneficial to general health, such as vitamins or a vacation.”  (Yes, that is a direct quote from the IRS publication.  Apparently, someone has a sense of humor.)

Staying on top of the Medical Expense Deduction

Along with charitable contributions, state tax expense, mortgage interest, and real estate tax, many folks have been able to include a little something for medical expenses on their Schedule A: Itemized Deductions, but this is changing.

Here’s how it used to work:  figure out your Adjusted Gross Income(AGI), take 7.5% of your AGI, and any medical expenses in excess of this amount get included with your itemized deductions.  Basically, this meant that the government figured you should be able to afford to spend up to 7.5% of your available income on medical expenses, and anything beyond that merited special consideration, namely, a tax deduction.

Because it isn’t what you think it is…

Individuals!

In Washington DC, there is a holiday called Emancipation Day.  This year, it falls on Friday, April 15.  Due to this, the basic federal income tax deadline has been changed to Monday, April 18.  Most states will follow suit, just because it is easier to have the same deadline. This is a one-time change.

Businesses!

Beginning next year, for the 2016 federal income tax filings happening in 2017, the due dates for some forms will change.  This is a permanent change!  Here’s the list:

No act of kindness, no matter how small, is ever wasted. – Aesop

What’s left?  How about really big stuff, like cars!

You hear it on the radio all the time.  Various charities trying to outdo one another in the attempt to get you to let them have your old car.  How does that work, anyway?  Is it really worthwhile?

I can’t speak to the value to the individual organization. Are they really turning clunkers into cash? Or is it just some kind of keep busy activity for a certain segment of their population? Once again, I’m not a sociologist, and I’m not worried about it. As long as your paperwork is in order, you don’t have to worry about it, either.  Keep reading!