Navigating Tax Deductions Removed in 2019 and Their Impact

As the tax landscape continues to evolve, it is important to stay informed about the changes that can impact your tax liabilities. One significant year of adjustments was 2019, particularly for 2018 taxes. The Act to Extend the Expiration Date of Certain Provisions of the Tax Cuts and Jobs Act (ACJA) brought about several changes to tax deductions. Here, we will explore the key deductions that were removed and how they affected taxpayers.

The Removal of Miscellaneous Deductions

One of the most significant changes under the ACJA was the elimination of several miscellaneous deductions that were previously subject to a 2% floor. This affected a wide range of expenses, such as:

Employee Business Expenses Investment Expenses Donations to Political Organizations (not related to certain IRS-approved charity organizations)

These changes significantly impacted both individuals and businesses that relied on these deductions. For many, the absence of these deductions led to a higher tax liability. While these deductions might have been substantial, their removal represented a strategic move to simplify the tax code.

The Limited State and Local Tax (SALT) Deduction

Perhaps one of the most impactful changes for many taxpayers was the limitation on the State and Local Tax (SALT) deduction. Prior to the ACJA, taxpayers could deduct a significant portion of property taxes and income taxes paid to state and local governments from their federal tax calculations. However, under the new regulations, the total SALT deduction is now capped at $10,000 annually.

This change particularly affected residents of high-SALT states, such as:

New York (NY) New Jersey (NJ) Illinois (IL)

For taxpayers living in these states, the impact was substantial. Many lost around $20,000 or more in deductions, which translated to higher tax bills. The change was intended to address the growing concern over the high taxes in specific regions and to ensure a more balanced distribution of tax benefits across the country.

The End of Moving Expenses Deduction

The removal of the moving expenses deduction is another notable change. Normally, individuals could deduct the costs associated with moving to a new home for employment or work-related purposes. However, under the ACJA, this deduction became unavailable unless the move was ordered as part of military service requirements.

For many, this change comes as a significant disappointment. The ability to deduct moving expenses often meant a substantial savings when transitioning to a new job or a new home. The removal of this deduction can be particularly frustrating for those who have accurately planned their financial budget around these anticipated tax savings.

Offsetting Changes and New Advantages

While the removal of these deductions undoubtedly had a negative impact, there were also some new advantages introduced by the ACJA:

Near Doubling of the Standard Deduction

The standard deduction was almost doubled from approximately $6,350 to $12,400 for single filers. For married couples filing jointly, the figure rose from $12,700 to $24,800. This increase provided a significant amount of tax relief for those who choose not to itemize deductions.

Increased Child Tax Credit with New Limitations

Another notable change was the doubling of the child tax credit from $1,000 to $2,000 per child, subject to certain qualifications. This increase was intended to provide financial support to families, particularly those with children. However, the credit is now limited to a maximum of $1,400 per child due to phase-out provisions.

Lower Marginal Tax Rates Except for the Lowest Bracket

The marginal tax rates for the vast majority of taxpayers were reduced under the ACJA. The new rates are:

10% (unchanged for the lowest bracket) 12% 22% 24% 32% 35% 37%

This reduction in rates provided a general benefit to taxpayers across all income levels, except for those in the lowest bracket who remained at the 10% rate.

Conclusion

The changes to tax deductions in 2019 represented a significant shift in the tax code, particularly for 2018 taxes. Understanding these changes and their impact is crucial for future tax planning. It is always advisable to consult with a tax professional to navigate the complexities of the tax code and to make informed decisions about your financial future.