Warning: Huge Tax Changes Ahead
Last week, I had the pleasure of attending one of five annual IRS Nationwide Forums in Orlando, FL. These forums are held every year and they're growing in attendance and learning potential. This particular session was the fifth and final forum of 2018. The forum hosts were proud to announce that there were approximately 4,000 tax pros in attendance, which is a new record. Given the vast number of changes due to the Tax Cuts & Jobs Act, it makes sense that so many tax pros are trying to get a leg up on these changes before the onset of tax season.
Based on what was discussed at the Forum, here are the most memorable changes that will impact most taxpayers during this coming tax season:
1. Unreimbursed employee expenses are no longer deductible: Don't purchase things for work and expect to take a tax deduction! Unfortunately, this could have a huge adverse impact on a profession notorious for purchasing their own supplies - Teachers. Previously, a teacher could deduct $250 on line 23 of the 1040 and the remainder could be deducted on Schedule A, but now none of that is possible.
2. Increased Section 179 Depreciation: Under certain circumstances, businesses can now fully depreciate up to $1,000,000 of equipment purchased in the current tax year. This is an increase from $510,000 in previous years. However, this deduction can be tricky and there can be massive negative tax implications if your business ceases operations.
3. Employer paid moving expenses must be included in taxable income (except for active military): Overall, moving benefits took a huge hit with the recent tax reform. Not only are employer paid relocation expenses now reported as taxable income, but taxpayers also lost the deduction for unreimbursed moving expenses (that were related to employment).
4. Employer provided meals are only deductible if used for a party or picnic: This one is a huge mystery, but whatever.
5. Entertainment is no longer deductible: Business meals will continue to be deductible at 50%, but all language related to entertainment has been removed. Don't plan to deduct any more expenses to take your clients to sporting events! Taxpayers who use QuickBooks will need to make a change to the default account called "Meals & Entertainment" to bifurcate these categories accordingly.
6. The new 1040 is the size of an (oversized) post card, kindof: The new 1040 has been reduced from 79 lines to 23, which sounds great because it can fit on a "post card". However, the post card is a half sheet of paper, front and back. Let's to the math: 0.5 page + 0.5 page = 1 full page (which is larger than a post card). Plus, there are six new schedules that accompany the new 1040. The new 1040 replaces the old 1040EZ and 1040A, but don't be fooled. The forms may be different, but they are not shorter.
7. New Qualified Business Income Deduction for pass-through entities: This provision allows for a 20% tax deduction for pass-through entities, which is great. However, if your industry is listed as a Specified Service Trade or Business (SSTB) according to the IRS, you'll be subject to a phase-out starting at $157,500 of income ($315,000 for married filing joint).
Overall, I am so happy that I went to an IRS Nationwide Forum. Surprisingly, I see a lot of benefit for business owners to attend (yes, even those who don't prepare taxes for a living). I hope to see you at one of these forums in 2019!