As we start the tax season, let’s look at what is on the table.  This is not an all-encompassing list and is a general discussion.  Each individual situation should be discussed with a tax expert

Most individual taxpayers, especially those who have W2 income only will use the standard deduction.  Even with the loss of the individual exemptions, this has been shown to be better for individuals and families with less than four children at home.  There are, however, still some opportunities to itemize if the expenses are large enough.

The illusive medical expense deduction is still available.  This deduction picked up a floor of 7.5 percent several years ago and then that was raised to 10 percent before the 2017 Tax Cuts and Jobs Act (TCJA).  Since the TCJA was signed that floor is back down to 7.5 percent.  There are several expenses that may not seem obvious.  Here’s a list:

  • Alcoholism Treatment
  • Fertility Enhancement
  • Stop Smoking Programs

What is not deductible:

  • Weight Loss Programs
  • Nonprescription Drugs and Medicine (except insulin)
  • Health Club Dues
  • Cosmetic Surgery

Much has been said about the loss of miscellaneous deductions, but they aren’t all gone.  These are still deductible:

  • Gambling Losses
    • Only up to the amount won.
    • Includes wagers
    • Expenses of gambling including travel.
  • Casualty and Theft Losses on Income-Producing Property
    • Stocks
    • Notes
    • Bonds
    • Gold & Silver
    • Vacant Lots
    • Artworks
  • Federal Estate Tax on Income in Respect of a Decedent
    • Income that would have been received except for death and
    • Income not properly included on the final tax return
  • Fines and Penalties – In general these are not deductible except:
    • Amounts paid for restitution, not used to become compliant with the law.
    • Amounts paid to become compliant with the law.
    • Taxes due.
    • Some court orders where government agencies are part of the case.
  • Club Dues – The following organizations may be deductible if they have a business purpose:
    • Boards of trade
    • Business leagues
    • Chambers of commerce
    • Civic or public service organizations
    • Professional boards
    • Trade associations
  • Losses from Ponzi-Investment Schemes

The following are generally not deductible except as noted.

  • Unreimbursed Employee Expenses are not Deductible. 
    • This used to be on Schedule A, under Miscellaneous Expenses subject to the 2 percent rule.
    • Exceptions to this rule:
      • Armed Forces reservist
      • Qualified performing artist
      • Fee-basis state or local government official
      • Employee with impairment-related work expenses
  • Campaign Expenses
  • Commuting Expenses
    • The exceptions above apply.
    • These employees can deduct the additional cost of hauling tools, instruments or other items in their car to and from work.
  • Fines and Penalties except as shown above.
  • Lobbying Expenses.
  • Club Dues except as shown above.
  • Political Contributions including advertisements in convention bulletins.

For those who are partially or fully self-employed, which includes anyone who received a 1099, there are many possible deductions.  There are two keys to deductibility. 

  1. The expense must  be common and accepted in the industry and necessary.
  2. Good records are imperative. 
    1. Keep every receipt even remotely connected to the business enterprise.
    1. Keep logs for mileage and activities related to the business enterprise.

The tax code is no less complicated than before the Tax Codes and Jobs Act and the reworking of the 1040 family of forms.  In fact, in many ways, it is more complex, especially for business owners.  For those who have a business, investments, or significant expenses professional tax preparation by an expert Enrolled Agent.