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Life Events and Tax Changes

Couple researches which of their tax deductions have been changed

Changes to the federal income tax law could make you eligible for new tax deductions, which might let you keep more of your money in your own pocket rather than giving it to Uncle Sam. But you’ll need to know which tax deductions were eliminated and which deductions changed their limits.

Standard Deductions vs. Itemized Deductions

There are two ways to go with your personal income taxes: You can take the standard deduction, which means your gross income (the total amount you made in the calendar year) is reduced by a set amount, or you can itemize deductions. The standard deduction amounts nearly doubled from 2017 to 2018 with the passage of the 2019 Tax Cuts and Jobs Act (TCJA).

Standard Deductions for 2017 Tax Year (Taxes Filed in 2018)

  • Single or Married, Filing Separately: $6,350
  • Head of Household $9,350
  • Married, Filing Jointly $12,700

Standard Deductions for 2018 Tax Year (Taxes Filed in 2019)

  • Single or Married, Filing Separately: $12,000
  • Head of Household $18,000
  • Married, Filing Jointly $24,000

Standard Deductions for 2019 Tax Year (Taxes Filed in 2020)

  • Single or Married, Filing Separately: $12,200
  • Head of Household $18,350
  • Married, Filing Jointly $24,400

Woman researches how life changes will affect her taxes.

In order to make it worthwhile to itemize, you would need to claim more itemized deductions than the standard deduction. So, if you’re single, you need to identify more than $12,000 worth of deductions to make itemizing worth it. Whether you plan to do your own taxes or get help, you’ll need to gather documentation and do a bit of research on deductions you qualify for.

Tax Deductions Eliminated in the TCJA

Here are some of the tax deductions that have been eliminated or reduced:

  • Alimony. You no longer can deduct alimony payments from taxes.
  • Employee expenses. You used to be able to deduct work-related expenses that were not reimbursed by your employer, such as uniforms and business-related meals, but not anymore.
  • Tax preparation costs. You no longer can deduct the costs of paying an accountant or other tax pro for preparing your tax return.
  • Casualty and theft losses. Unless these were related to an event declared a disaster by the federal government, they are not tax deductible. Claims must include a Federal Emergency Management Agency (FEMA) code.
  • HELOC. You no longer can deduct most interest paid on a home equity loan of credit (HELOC). The only way the interest is deductible is if the money was used to substantially improve or buy your primary or second home.
  • Moving expenses. You no longer can claim deductions for the cost of a move. However, if you are in the Armed Forces, you still may get the deduction.
  • Affordable Care Act Penalty. It’s not a deduction, but it is a change. The penalty for not having health insurance will be eliminated starting in 2019. You still must pay the penalty if you didn’t have insurance in 2018.

Man reads about how the Tax Cuts and Jobs Act will change his tax deductions.

For more detailed information about these changes, see the IRS publication 5307 “Tax Reform Basics for Individuals and Families.”

Life Events and Tax Deductions

Here are some other changes to tax deductions that might affect you if you’ve had one of these life events.

  • Getting married. Prior to the TCJA, you might have suffered from an unintentional tax penalty if your combined income with your new spouse pushed you over certain income limits. But the new law eliminates this risk by doubling the income brackets for married couples filing jointly.
  • Paying for a child’s education. It is now allowable to use funds in your child’s 529 savings account for qualifying educational expenses prior to college, such as K-12 private school tuition, up to $10,000.
  • Having a baby. Each qualifying dependent earns you a $2,000 tax credit if you make up to $200,000 as an individual or $400,000 as a married couple. If you’ve just had a baby, make sure you have their Social Security number to include on your return. Children must have a Social Security number included on your return to get the Child Tax Credit.
  • Co-parenting when divorced. If you’re divorced, make sure only one of you is claiming each dependent. The IRS will penalize you if both parents claim the same children on their tax returns.
  • Business equipment. If you own a business, even if it’s just a side gig, and you operate a limited liability corporation (LLC) or an S-Corp, you will be able to claim the full depreciation value of equipment purchased in the tax year, such as a new computer or other technology upgrades.
  • Home office deduction. The rules for claiming a home office have loosened. You can claim the portion of your home that you use for work, even if you don’t see clients there. However, the space must be used exclusively for business purposes. You also can deduct a proportionate amount of the utilities and housekeeping costs for your office. For example, if your office is 10 percent of your home’s total square footage, then you could deduct 10 percent of the utilities bill as well.
  • Mortgage interest. You can deduct interest paid on your primary or second home mortgage as long as the original principal was less than $750,000. This was lowered from $1 million before the new tax law. If your mortgage was initiated before December 15, 2017, you are grandfathered in, so even if your mortgage principal was up to $1 million, you’ll still get the deduction.
  • Estate taxes. it used to be that heirs paid 40 percent tax on estates over 5.49 million. Now you won’t be hit with the 40 percent tax until you hit 11.2 million worth of inheritance over the course of your lifetime.
  • Medical expenses. You can deduct any unreimbursed medical expenses over 7.5 percent of your adjusted gross income for the 2018 tax year. In 2019, your unreimbursed medical and dental expenses must exceed 10 percent of your income in order to be deducted.
  • Charitable donations. Prior to the new tax law, you could deduct charitable contributions up to 50 percent of your adjusted gross income. Under the TCJA, this was raised to 60 percent.

If all of this is overwhelming, make a goal to do a little bit at a time. For example, commit 10 or 15 minutes per day to read about a certain tax deduction that might apply to you. And use SAM’s free Life Events and Transitions Course to navigate your way through big life changes.

[Any reference to a specific company, commercial product, process or service does not constitute or imply an endorsement or recommendation by the National Endowment for Financial Education.]

See this article in Spanish: Cambios de circunstancias y cambios tributarios