By Sheryl Rowling
SAN DIEGO — The new tax laws are here and they are very confusing. Rather than list out a bunch of boring rules, I thought I’d try to clarify some of the common misconceptions.
Charitable contributions are no longer deductible. FALSE
Charitable contributions do not reduce your income taxes if you don’t itemize. If you itemize, you still get to claim a deduction. If you don’t itemize and you are over age 70-1/2, you can get the write-off by donating directly from your IRA – even if you take the standard deduction. Also, remember that you might still itemize deductions for California even if you’re not for Federal purposes.
The new tax laws will cut my tax bill. MAYBE NOT
If you are a high-income taxpayer, your tax bill might be less – mainly because the top rates are lower and the Alternative Minimum Tax has been greatly reduced. But, for the rest of us and those of us living in California, our tax bills will be higher. This is because many deductions have been eliminated and state, local & property tax deductions are limited to just $10,000 total. Having less in write-offs has resulted in unexpected tax due for many taxpayers this tax season.
Casualty and theft losses are no longer deductible. MOSTLY TRUE
For Federal tax purposes, casualty and theft losses are not deductible unless they occur from a Federally declared disaster. They are still deductible for California purposes.
Home equity interest is no longer deductible. MOSTLY TRUE
Home equity interest is no longer deductible unless you used the money to buy or improve your home AND your total debt is not in excess of $750,000. Home equity debt spent on anything other than your home (such as a new car) is not deductible for Federal purposes.
Tax returns can now be filed on a postcard. FALSE
The new “postcard” tax return must be filed on 8-1/2 by 11 paper. Also, what was front and back on one page is now a main page plus six new schedules! So much for simplification.
Tax returns are simpler now, so I don’t need to use a CPA. FALSE
This would be nice, but the truth is that the new tax laws are come complicated than ever. In fact, the House bill was over 500 pages! The law was passed so quickly that there were many inconsistencies and gaps. The IRS has been releasing guidance on an ongoing basis to try to clarify the new rules. Among the new complications are more limited deductions, a new “qualified business income” deduction, higher standard deductions, eliminated exemptions, new dependent credits, different limits for medical and charitable deductions, new tax rates and revised Alternative Minimum Tax rules.
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Rowling is a certified public accountant, personal finance specialist, and principal of Rowling & Associates. She may be contacted via sheryl.rowling@sdjewishworld.com