The theme for this year’s tax season so far seems to be the double-whammy of a shortened filing period along with complications resulting from the tax reform of 14 months ago. It’s a lot to …
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The theme for this year’s tax season so far seems to be the double-whammy of a shortened filing period along with complications resulting from the tax reform of 14 months ago. It’s a lot to process!
As most of us know, the IRS wasn’t even accepting e-filed (2018) returns until Jan. 28 of this year, which effectively shrinks the tax-return season to under 80 days. And this year, we are dealing with the Tax Cuts and Jobs Act of 2017 (TCJA), which was mostly ignored by taxpayers until they arranged a chance to sit down with a professional tax preparer.
We can all agree that there have been many rumors flying around about the TCJA. Let’s review some of the myths/assumptions and inaccuracies that I’ve heard from my clients:
Medical-expense deductions were going to be repealed. No, they weren’t.
Charities would be hurt because of restrictions for individuals to take donations as a tax deduction. Nope. Actually, the ability to deduct charitable contributions - if you can itemize - was increased.
Home equity line (HELOC) interest deductions were eliminated. Not entirely! They are restricted, but not eliminated. A taxpayer can’t buy a new luxury car with the HELOC and then write-off the interest. But if you used the HELOC to make improvements to your home, then the interest is still deductible. Limitations do apply and it’s up to the taxpayer or the tax professional to “audit” the use of the HELOC funds.
And people seem to believe that deductions were eliminated for “meals and entertainment.” Not the case! Entertainment costs ARE eliminated as deductions, but many business-related food deductions are still applicable. For example, if you rent a skybox at the Rockies, the rental of the skybox is NON-DEDUCTIBLE. However, if the vender issues a SEPARATE invoice for food and drink, then the food and drink total will still be deductible at 50 percent. There are more problematic issues for companies who wrote off 100 percent for employees’ meals - e.g. pizzas every Friday night, or lunches for staff at a CPA firm during filing period - as those expenses will receive the same 50 percent haircut.
This would be a good spot to underscore that meal deductions apply ONLY to businesses. If the taxpayer is an employee, all the job-related expenses are now ineligible for deduction by the employee. For example, the project manager who drives his own truck to job sites without reimbursement is ineligible for deduction. Other examples: all travel for employees, internet fees, office in the home expenses, professional dues, etc., etc. ALL non-deductible.
So, if you weren’t paying attention to the tax law changes, or, worse yet, you assumed that your withholding was going to be the same in 2018 as it was in 2017, then you may be in for a very rude awakening. It may come in the form of lower refunds or (gasp!) maybe even a balance due.
You can take your return to another preparer, you can fire TurboTax, but that may translate into more tax-preparation costs for the same result. And, please, file your return on time. If you don’t like the results on the initial return, you surely will not like additions of interest and penalties.
Fran Coet is founder and owner of Coet2 CPAs in Westminster, www.Coet2.com. Call 303-426-6444.
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