10 Potentially Overlooked Aspects of the New Tax Bill

The passage of the new tax bill was highly publicized. This post focuses on ten potentially overlooked aspects of the new tax bill that may impact an individual’s 2018 income tax return. Remember, these new laws do not affect the 2017 individual income tax return.

1. All miscellaneous itemized deductions subject to the 2% of adjusted gross income floor are now suspended until 2026. For example, an individual cannot claim a deduction for investment management and consulting expenses or tax preparation expenses.
2. Beginning in 2018, an individual cannot claim a deduction for personal casualty and theft losses unless such losses occur in a presidentially-declared disaster. The personal casualty and theft loss deduction will be reinstated in 2026.
3. For any divorce or separation instrument executed after December 31, 2018, the payor-spouse will not be able to deduct alimony payments, which means the recipient will not include alimony payments in gross income. This new law does not retroactively apply to any divorce or separation instrument currently in existence. If a divorce or separation instrument is executed on or before December 31, 2018 but is modified after that date, the payor-spouse cannot claim the alimony payment deduction if the modification expressly provides that this new law applies to the modified instrument.
4. Beginning in 2018, an individual cannot deduct any business-related expenses for entertainment, amusement, or recreation. Previously, an individual could deduct 50% of such business-related entertainment expenses. It should be noted that commentators have disagreed about whether an individual who pays for a client meal at a restaurant is still entitled to a 50% deduction. Ideally, the Internal Revenue Service will provide more guidance on this issue in the upcoming months.
5. Beginning in 2018, there is a 50% limitation on an employer’s deduction for food and beverage expenses provided to employees that can be excluded from an employee’s income as a de minimis fringe benefit. Previously, an employer could deduct 100% of such expenses. After December 31, 2025, an employer will not be allowed to deduct such expenses.
6. Beginning in 2018, a married joint filing individual can claim an itemized deduction of up to $10,000 for state and local property taxes and either state and local income or sales taxes. The individual can elect any combination of those taxes to reach the $10,000 limit. Previously, there was no limit on the state and local tax deduction. The new limit on the state and local tax deduction sunsets after 2025. Unless Congress approves an extension of this law, the unlimited state and local tax deduction will be reinstated in 2026.
7. For the 2017 and 2018 tax years, an individual may claim an itemized deduction for unreimbursed medical expenses only to the extent that such expenses exceed 7.5% of adjusted gross income. Previously, an individual under the age of 65 could take this deduction only to the extent that such expenses exceeded 10% of adjusted gross income. Starting in 2019, the 10% threshold will be reinstated for such individuals.
8. Beginning in 2018, an individual can take a deduction of up to 60% of the individual’s adjusted gross income for cash contributions made to public charities. Previously, an individual could take a deduction of up to 50% of the individual’s adjusted gross income for cash contributions made to public charities.
9. Beginning in 2018, an individual will not get a charitable deduction for any payments to a college in exchange for the right to purchase tickets for collegiate athletic events.
10. Beginning in 2018, a Section 529 plan can distribute up to $10,000 per year in expenses for tuition incurred in connection with the enrollment or attendance at a public, private, or religious elementary or secondary school. These expenses may be distributed from kindergarten through the 12th grade. Previously, a Section 529 plan could only be used for qualified higher education expenses.