Act Now On Tax Reform And Save

Elimination of Key Deductions

The professed goal of the tax bill passed in late December was to reduce tax rates and simplify the tax code. The first was partially achieved — until cuts expire in 2025, at least – but the second didn’t happen. Instead, legislators included a few scattershot attempts at “simplification” that could cost you dearly if you don’t prepare for them.

First, when the press began to refer to the “elimination of SALT” late last year, I thought the Trump administration was going to abandon the Cold War-era nuclear arms treaties between the U.S. and Russia. The truth was better, but for many of us, not by much.

Starting this year, you can only deduct a maximum of $10,000 of state and local income and property taxes (SALT) from your federal taxes. For most people that won’t matter because the standard deduction for joint filers has been doubled to $24,000. But for many people —and not just in high-tax states like New York and California — this will mean an effective increase in federal tax.

Legislators in an increasing number of states are considering ways to get around this, however. You know those inside sections of your local newspaper that cover state legislative issues? Time to start reading them.

Second, the new law eliminates all “miscellaneous” deductions … including those for home office expenses. If you’re an employee who works remotely at your employer’s request, or if you run a small business from home, kiss the deduction for business use of your home bye-bye. In my case, for example, that’s a significant tax increase.

Action item: Find out if your state legislators and city councilors are considering steps to convert income and property taxes into forms that could be deducted from federal income tax. Let ‘em know what you think!

Action item: If you work from home, model the tax implications of the loss of the home business-used deduction. You may able to rearrange things to compensate, at least partially.

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