Frequently Asked Individual Tax Questions From The New Tax Bill (Part II)
Frequently Asked Individual Tax Questions From The New Tax Bill
This continues a list of the most frequently asked questions we have received regarding the new tax law which takes effect this year.
Can My Company Still Deduct Business Meal and Entertainment Expenses? No, on the entertainment expenses. Yes, on the business meals. Starting this year (2018) no deduction is allowed for entertainment expenses such as sporting event tickets and even includes costs for qualified charitable events. There are no exceptions at this time.
Business-related meals are still 50% deductible. Even meals while engaged in non-deductible “entertainment” events are okay as long as the meal costs are separately identified. However, on-premises meals to employees used to be 100% deductible but are 50% beginning in 2018.
Are Personal Medical Expenses Still Deductible? Yes. Even though certain itemized deductions are limited (state and local taxes) or no longer available (miscellaneous itemized deductions), you can still write-off medical expenses that exceed 7.5% of AGI.
Do We Still Have Individual Alternative Minimum Tax? Yes. While corporate AMT is gone, personal AMT hasn’t gone away, but the new changes will cause it to affect less people than before by raising the amount of income exempted from AMT. This is a long overdue change.
Clarification Of New Mortgage Interest Deduction Rules. There are two important changes to the mortgage interest rules that you simply must know. The most important one has to do with the “use” of your mortgage funds. The second is more of a high-earner cap on the total amount of mortgage debt you have.
Use of funds. Historically, as long as the loan proceeds came from a home-equity loan it didn’t matter what you used the proceeds for. No longer. Beginning in 2018, the interest deduction is allowed on an existing or new home equity loan only if the debt is used to improve or maintain the home used to secure the debt.
To state it differently, there is no longer a deduction for interest on home equity loans used to pay personal expenses, such as paying down credit card debt, for example. This is regardless of when you incurred the home equity loan.
Mortgage debt cap. Starting with new mortgage loans in 2018, mortgage interest can be deducted on up to $750,000 of mortgage debt on a primary and a secondary residence, which is a decrease from a $1 million cap on mortgage debt incurred prior. If you are filing separately, these amounts are cut in half.
This limit doesn’t apply to already-existing loans which maintain the $1 million cap.
Is There a Limit On “Business” Property Tax and Business State Sales And Income Tax? No. The $10,000 cap applies only to personal taxes. Business-related taxes remain fully deductible in a for-profit business as these items are deducted on the business return, or Schedule C if a sole proprietor.
Are Moving Expenses Still Deductible? No. Moving expenses are no longer deductible on your individual return, and, to boot, any employer-reimbursed moving expenses to the employee are now taxable and included in W-2. This change begins in 2018. The only exception to this rule is for active-duty military moves.
Social Security Wage Base Increases To $132,900 For 2019. The Social Security Administration (SSA) just announced that the 2019 wage base for computing the Social Security tax in 2019 will increase to $132,900, up from $128,400 2018, a 3.5% increase.
NOTE: Be sure to consult tax advice as the real property expensing rules can be difficult to navigate.
