The Tax Cuts & Jobs Act, TCJA, and its Impact on Miscellaneous Itemized Deductions and Charitable Contributions Deductions

1. Miscellaneous Itemized Deductions

By now, many of you are familiar with the types of expenses that were claimed as itemized deductions on your 2017 income tax returns. Fortunately, there was no need to reduce these deductions if your total Adjusted Gross Income, AGI, did not exceed certain thresholds. This is called the Pease Limitation set by the rules. For instance, if your AGI exceeded $261,500 if filing single, or $287,650 if Head of Household, or $313, 800 if Married Filing Joint, or one half of this amount if filing separately, the itemized deductions would have to be reduced by 3 percent but not greater than 80 percent of the total itemized deductions. So far, so good, but hold on, what happened with the Miscellaneous Itemized Deductions subject to 2 percent of AGI and the Tax Cuts & Jobs Act?

Under the TCJA, the Pease Limitation on miscellaneous itemized deductions is suspended, meaning all miscellaneous itemized deductions subject to 2 percent of the taxpayer’s AGI that could be deducted is now suspended beginning in 2018 until the end of 2025. Form 2106, used to deduct expenses such as travel, meals, and vehicles is no longer used as an miscellaneous itemized deduction on Schedule A. Thus, popular expenses for employees such as work-related travel, expenses incurred on the job, safe deposit box fees, tax preparation fees, legal fees even to sue the IRS, transportation, computers or cell phones used for work, professional dues, trade magazines, tools and supplies used for work, uniforms and work clothing, union dues, job search, etc are no longer deductible. However, if you sell goods to customers, your cost of goods sold is still deductible.

So what can you do? Here’s a strategy, ask your boss for a raise, or reimburse you for any expenses you incur on the job. Make sure you have receipts to back them up.

Deductions that survived the TCJA include gambling losses, limited to the extent of winnings, investment interest, also limited to the extent of investment income, estate taxes in respect of the dead and if you’re a partner in a partnership, any losses you incur.

2. Charitable Donations

Under the old law, a taxpayer was allowed to deduct in total, cash donations up to 50 percent of AGI, and if there were excess donations, they can be carried forward and deducted over the next five succeeding years in the order of time. Effective January 1, 2018, The AGI based percentage for cash donations has been increased from 50 to 60 percent. Any excess can be carried over the next five succeeding years as deductions in the order of time.

Burden of Proof:

There are 2 essential elements in every contribution:

  • the maker or donor parts with something, and
  • the recipient or donee receiving something

The burden of proving charitable contribution deductions remains with the donor taxpayer. So, cash contributions at any one time that is less than $250 only requires a cancelled check, or Contemporaneous Written Acknowledgement, CWA, from the qualified donee organization (church or otherwise).

Contributions over $250

If over $250, it is not allowed unless the taxpayer substantiates the contribution with a CWA from the permissible donee charity. The CWA must clearly state:

The amount of cash and a description if other than cash,
If the taxpayer received any goods or services, in whole or in part, in return for the cash donation,
If other than intangible religious beliefs, a description and good faith estimate of the value of the goods or services benefiting the taxpayer, or a statement if no benefits provided.

Non-Cash Contributions over $500
If over $500, then Form 8283 has to be filed with the tax return describing the donation and how it was acquired by you and how disposed of.

Non-Cash Contributions over $5,000
Unless the donation is not in the form of publicly traded securities such as stocks or bonds, a qualified appraisal is required in addition to Form 8283 and Form 8283 has to be filled out by a qualified appraiser for the deduction to be allowed. So, if you donated a car or other property valued over $5,000, you must follow this path. For more assistance with this type of tax preparation, please contact my office.

Acceptable Charitable Contributions Include money or property given to:

  • Churches, synagogues, temples, and other religious organizations,
  • Federal, state and local governments, if the donation is solely for public purposes such as gifts to reduce public debt, or for public parks,
    Non-profit schools and hospitals,
  • The Salvation Army, Red Cross, Goodwill Industries, Boys Scouts of America, Girl Scouts of America, Boys and Girls Clubs of America
    War veteran groups,
  • Expenses for students living with a taxpayer, sponsored by a qualified organization,
  • Out of pocket expenses when serving as a volunteer of a qualified organization

In Part VIII, we’ll look at the impact on medical expenses, moving expenses and alimony payments. There are changes affecting small businesses such as Sole Proprietors, S-Corporations, LLCs and Partnerships. Congress looked at the hefty reduction in the corporate tax from 35 percent to 21 percent and in sympathy with the above pass-through entities, Congress decided to enact the 20 percent Qualified Business Income deduction. We’ll look at the highlights of this deduction later on. Happy taxing!

Disclaimer: CB Tax Accounting Inc does not provide tax, legal or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisor(s) before engaging in any transaction.