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Tax Reform and Travelers Part 1

Part 1 of 3 on how to navigate through the changes

Shortly before Christmas, Congress passed the most significant tax bill in 30 years. In the next couple of blog entries, we will look at highlights of the new tax rules and how they affect travelers. These rules largely took effect 1/1/18 and apply to the tax return that we will file in 2019. Not the return that we are currently filing in 2018.

Employee Business Expenses – No Mas’

The most important change for travelers is the suspension of the employee business expense deduction till 2026. Employee business expenses comprise a lengthy list of items that an employee pays for that go unreimbursed. This includes lodging, meal and transportation expenses in excess of reimbursements (per diems, stipends etc.), licenses, uniforms, CEUs, seminars, equipment, fingerprints, reference materials etc. Yes, these expenses are no longer deductible as an employee. 

Reimbursements for these expenses on a tax-free basis are still allowed. While Congress was debating the tenants of the tax bill, Social Media, the Pyxis Station, and the breakroom were flooded with rumors that travel stipends would become fully taxable under the new rules. This was never contemplated. It is the ability to deduct the expenses that have been removed, not the opportunity to be reimbursed.

At the same time the standard deduction has more than doubled. The Standard Deduction is an amount that all taxpayers can deduct unless their itemized deductions exceed the amount of the standard deduction. Itemized deductions consist of medical expenses, state / local taxes, charity, casualty losses, mortgage interest, investment interest, and other items like gambling losses. Employee business expenses were part of this list of itemized deductions, but not any longer. 

While the standard deduction increased, one bit of fine print is important to consider. On top of the standard deduction, a taxpayer was allowed a personal exemption for themselves and all dependents. This has also been removed. This means that the amount needed to itemize has significantly increased. To illustrate, in the 2016 tax year, the standard deduction was $6,300 and the personal exemption was $4,050. To deduct more than the standard only required that a tax payer have more than $6300 in these categories to add. Now, with the personal exemption gone, the threshold to itemize is now $12,000. 

In the next installment, we will look at the type of contracts and travelers that are most affected by these changes.

Article written by Joseph C. Smith, RRT, EA, MSTax 

President/Founder of TravelTax

www.traveltax.com – www.traveltax.ca

Phone (USA): (402) 379-7818 – Phone (CA): (902) 482-8128

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