Standard versus itemized deductions
TCJA almost doubled the standard deduction rate. Single filers can now deduct $12,000 while married joint filers can deduct $24,000. Head of Household now allows for a standard deduction of $18,000. This means that even if you have itemized in the past you may not itemize in the future because of these higher deduction rates. Also worth noting is that several deductions you may have taken in the past which would bring you over the $12,000 / $24,000 threshold have either been limited or eliminated altogether (SALT & Employee Business Expenses, both discussed in more detail below).

SALT Deduction – State and local tax deduction
The itemized deduction for state and local taxes has been limited to $10,000. This is the deduction you receive on your federal return for the following types of tax payments

• state income taxes withheld throughout the year
• state income taxes paid in the filing year for prior periods
• estimated state income taxes paid
• local taxes such as Rhode Island disability
• property taxes paid on your principle residence
• fire tax paid on your principle residence
• auto taxes

Consider this example – A married couple filing jointly has $6,000 in total state income taxes withheld. They pay $6,500 in property taxes to their municipality, $500 in in fire tax, and another $750 in auto taxes. In prior years they would have been able to deduct a total of $13,750 however under the TCJA this couples deduction would be limited to $10,000. Assuming this couple is in a 22% tax bracket, the $10,000 limitation of state and local taxes would result in an additional $825 in tax due / reduction of refund compared to prior years.

Mortgage and home equity interest deduction
Under the old tax law you were allowed to deduct mortgage interest up to the $1 million of acquisition indebtedness. Under the TCJA that has been reduced to $750,000 for all acquisitions loans dating December 16, 2017 and later. Another big change is that home equity loan interest is no longer deductible without proof that the proceeds of the loan were used to substantially improve the home.

Miscellaneous Expenses / Employee Business Expenses
The TCJA eliminates write-offs for miscellaneous itemized expenses. These were the expenses that were subject to a 2% of Adjusted Gross Income deduction. The two major categories of expenses under this deduction were for unreimbursed employee business expenses and tax and investment related expenses. For many professions the unreimbursed employee business expense was a very big part of their itemized deductions as it included some of the following

• Education Expenses
• Uniforms and Uniform Maintenance
• Travel Expenses related to your work
• Professional Society and license costs
• Union Dues
• Home Offices
• Tools and Supplies
• Mileage
• Meals and Entertainment

***the deduction for all of the above and similar items have been eliminated****

Consider a police officer, firefighter, sales person or other professional that typically deducts $7,000 in unreimbursed employee business expenses and earns $100,000 - Under the old law this individual would have been able to deduct $5,000 (the first $2,000 was never deductible). Assuming a 22% tax bracket this would have yielded $1,100 in reduction of tax due.

The new child tax credit
The TCJA has increased the child tax credit to $2,000 per qualifying child (meaning the child is under the age of 17 at the end of the year). Under the old law the credit began to be phased out at $75,000 for single filers and $110,000 for joint filers. The TCJA has increased this to $200,000 for single filer and $400,000 for joint filers.

Elimination of personal exemption and dependent deductions
Under the old tax law you could claim an exemption for yourself, spouse, and dependents in the amount of $4,050 per exemption. This resulted in a reduction of adjusted gross income and therefore a reduction of taxable income. The TCJA has eliminated these exemptions.

New tax provisions, including a higher standard deduction or potentially lower tax bracket, may or may not make up for the removal of exemptions and deductions. This is why we advise everyone to do a paycheck checkup under the new tax law. Below are the links to an IRS video and the IRS paycheck calculator. Please take a moment to ensure your withholdings are correct and make any changes necessary before the end of the year.

https://www.irs.gov/payments/tax-withholding