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A lot of federal income tax deductions will be out of reach for millions of taxpayers this tax season.
In some cases, it’s because the Tax Cuts and Jobs Act of 2017 ended, suspended or limited the deductions effective for tax year 2018 — the return that’s due by April 15. In other cases, it will not be in taxpayers’ financial interest to claim the deductions, because they would do better if they instead claimed the higher standard deduction that kicked in this past tax year.
In this regard, the new standard deduction is a double-edged sword — lowering your taxable income while taking off the table some deductions you might have claimed in the past.
How it helps
The standard deduction for tax year 2018 will be nearly double what it was the prior year, as we detailed in “4 Good — and Bad — Changes for Next Year’s Tax Return.”
For taxpayers who claim the standard deduction this tax season, this basically means that less of their income will be subject to federal income taxes.
For example, a married couple filing a joint return this tax season will not be taxed on the first $24,000 of their 2018 income — compared with not being taxed on the first $12,700 of their 2017 income.
How it hurts
Far fewer taxpayers are expected to itemize their deductions — rather than claim the standard deduction — this tax season.
Congress’ Joint Committee on Taxation has estimated that only about 18 million returns will include itemized deductions for tax year 2018 — down from 46.5 million for tax year 2017.
It generally only makes sense to itemize deductions if the total amount of your itemized deductions exceeds the amount of your standard deduction. But such circumstances will be less likely due to deductions that have been ended, suspended or limited, and due to the standard deduction being much higher.
According to the IRS, itemized deductions can include:
- Medical and dental expenses
- State and local taxes
- Mortgage interest
- Donations to charity
- Certain business expenses — including costs associated with travel, entertainment and use of a home or car for business-related purposes
So, if you are among the millions of taxpayers who itemized deductions for 2017 but will take the standard deduction for 2018, you will not be able to write off these expenses on your tax return that’s due in April.
What’s your take on the new standard deductions? Sound off below or on Facebook.