The Internal Revenue Service (IRS) also allows deductions for medical expenses, losses from fires, floods, and gambling, and alimony payments incurred by taxpayers. Under the sweeping tax reform bill passed by Republican lawmakers, there will be changes in the allowable amounts, among others.
Be sure to inform your tax preparer at Jackson Hewitt in case you have concerns about the possible impact of these changes on your taxable income, refund and other matters. The following are general guidelines so there will likely be exceptions to the rule.
Under the new plan, taxpayers can deduct their out-of-pocket medical expenses exceeding 7.5% of their adjusted gross income in 2017 and 2018. But the 10% threshold will apply again in 2019. Keep in mind that, in both cases, the medical expenses amounting to the first 7.5% or 10% of the adjusted gross income aren’t deductible.
Under Obamacare, or the Affordable Care Act, taxpayers have to buy a qualifying health insurance plan or else pay a penalty. But if they are qualified for an exemption, it doesn’t apply.
In the new place, said penalty is zero. In effect, fewer people may sign up for health insurance. This can have an adverse effect on people who aren’t qualified for premium subsidies since they will pay for higher premiums.
Losses from Fires, Floods and Gambling
If you incurred losses from fires or floods, you can still deduct the amount under the rules of the existing tax law. But there’s a catch: The fires or floods from which said losses were incurred must be declared via a presidential decree. Otherwise, you can’t claim the deductions.
Under the current law, losses from house fires, burglary, and flood, among other similar events, can be declared as losses and claimed as deductions. But each loss should be more than $100 while your cumulative losses should exceed 10% of your adjusted gross income.
For people who claim deductions for their wagering expenses, they have to add said expenses to their total gambling losses before comparisons between said sum and total taxable winnings can be made. This in under the new tax reform plan.
Under the current tax law, however, people can deduct their gambling losses but up to a certain point only. The gambling losses can only be deducted up to the amount of any and all gambling income for any given year.
And then there’s also the heavier burden for people paying alimony to their ex-spouses under the new tax plan. Alimony will not be a deductible expense for the giver while the recipient will not pay tax on it. This will take effect on separation agreements including divorce executed starting in 2019 only.