New guidelines could impact taxpayers who plan to deduct employment-related moving expenses, vehicle expenses, and unreimbursed employee expenses in their next filing.
The changes are a result of the Tax Cuts and Jobs Act (TCJA), which affected a variety of common deductions when it was signed into law in December 2017. After a period of uncertainty, the Internal Revenue Service (IRS) has provided clarifications on a few of those deductions.
Unreimbursed employee expense deductions
The TCJA ends the miscellaneous itemized deduction that had been limited to the 2 percent of adjusted gross income (AGI). The change affects common expenses such as uniforms, union dues, and the deduction for business-related meals, travel, and entertainment not reimbursed by the employer.
The TCJA also has suspended the deduction for moving expenses for tax years beginning Dec. 31, 2017, and ending Jan. 1, 2026. During those years, the IRS will not allow deductions for use of an automobile as part of a move using the mileage rate listed in Notice 2018-03. One exception is for military members who move because of a military order.
Thus, the business standard mileage rate issued before the signing of the tax overhaul bill can’t be used to claim an itemized deduction for unreimbursed employee travel expenses in tax years starting after Dec. 31, 2017.
Standard mileage rates
Under the new law, taxpayers can choose to calculate the actual costs of using their vehicle instead of using the standard mileage rates. However, a taxpayer can’t use the business standard mileage rate for a vehicle after using any depreciation method under the Modified Accelerate Cost Recovery System or after claiming a Section 179 deduction for that vehicle.
The business standard mileage rate can’t be used for more than four of any one taxpayers’ vehicles simultaneously.
The IRS earlier this year said mileage rates for use of a car, van, pickup or panel truck would remain:
- 5 cents for every mile of business travel driven, a 1 cent increase from 2017
- 18 cents per mile driven for medical purposes, a 1 cent increase from 2017
- 14 cents per mile driven in service of charitable organizations (set by statute; remains unchanged)
Increased depreciation limits
The TCJA increases the depreciation limit for passenger automobiles that have been placed in service after Dec. 31, 2017, for the purposes of calculating the allowance under a fixed or variable rate plan. The maximum standard automobile cost can’t exceed $50,000 for passenger automobiles, trucks, and vans that were placed in service after Dec. 31, 2017. Before the new law, the maximum cost was $27,300 for passenger cars and $31,000 for trucks and vans.
If you have questions about the TCJA and how it can affect taxes for you or your business, please reach out to a KraftCPAs advisor. We’d be glad to assist you.