Whether you’re concerned about business write-offs or personal, there are deductions you can make to your taxable income.
However, with the Tax Cuts and Jobs Act in effect for the 2018 tax year, it’s understandable that you’d question what expenses can be withheld from your taxable income.
So what are you able to deduct for business expenses and personal expenses when you file your return by the April 15, 2019 deadline?
Qualifying Business Expenses
If you operate as a sole proprietor or a business, there are expenses you can withhold from your taxable income; however, they must be “ordinary and necessary” as defined by the Internal Revenue Service (IRS).
The Tax Cuts and Jobs Act eliminates a lot of previous business expenses while it reduces others. For example, client entertainment is no longer deductible, and even client meals or employee meals are only 50 percent deductible.
Transportation benefits such as parking for employees or passes for public transportation are also non-deductible although you can deduct more for car depreciation. For instance, if you purchase a vehicle for work, the maximum first-year depreciation jumped from $10,000 to $18,000.
Advertising costs, accounting fees, business travel, legal fees, office supplies, and utilities for your office or place of business are still deductible. In addition, if you’re a pass-through entity (S-corporation, sole proprietor, or partnership) you can take the 20 percent standard deduction.
Personal Expenses You May Be Able to Deduct
You may be able to deduct certain personal expenses under the new tax reform, but remember that most itemized deductions are no longer valid. You’ll no longer be able to take personalized exemptions either for yourself or your dependents.
For people who own their own home, you can only deduct mortgage interest under the new $750,000 limit. For home equity loans, you can only deduct the interest if you use the loan to improve a home for business or investment purposes.
You can no longer deduct moving expenses (except for active military personnel and their families required to move to a permanent location), job-related expenses, tax prep fees, or theft losses. All of these itemized deductions aren’t allowed for the 2018 tax year.
You can still deduct educational expenses, such as:
- Up to $2,500 for student loan interest.
- Up to $2,000 for tuition, books, transportation, and other fees for school, including 25 percent off the next $2,000.
- 20 percent off the first $10,000 you paid towards tuition and fees in 2018 (up to a maximum of $2,000).
You can also deduct expenses for childcare—up to $3,000 for a child under 13 or an incapacitated spouse, relative, or other dependent. That number doubles for two or more dependents. In addition, tax credits may cover up to $13,840 in adoption costs per child.
For retirement contributions, you can deduct up to $2,000 in contributions made to an IRA, 401(k), 403(b), or other retirement plans. You can also deduct any contributions made to a Health Savings Account.
Thanks to the tax reform, you can now deduct medical expenses that are 7.5 percent or more of your income. This percentage was lowered from the 10 percent of previous years.
Filing Your Tax Return
It’s important to know what you can and cannot deduct for your taxes when you file your tax return for 2018. When it comes to both business and personal expenses, there are things you can deduct that will reduce the amount of income you’re taxed on, so don’t overlook the deductions you’re eligible for!