NEWS

As teachers head back for a new school year, they often pay for various expenses for which they don’t receive reimbursement. Fortunately, they may be able to deduct them on their tax returns. However, there are limits on this special deduction, and some expenses can’t be written off.

For 2019, qualifying educators can deduct some of their unreimbursed out-of-pocket classroom costs under the educator expense deduction. This is an “above-the-line” deduction, which means you don’t have to itemize your deductions in order to claim it.

Eligible deductions

Here are some details about the educator expense deduction:

• For 2019, educators can deduct up to $250 of trade or business expenses that weren’t reimbursed. (The deduction is $500 if both taxpayers are eligible educators who file a joint tax return, but these taxpayers can’t deduct more than $250 each.)
• Qualified expenses are amounts educators paid themselves during the tax year.
• Examples of expenses that educators can deduct include books, supplies, computer equipment (including software), other materials used in the classroom, and professional development courses.
• To be eligible, taxpayers must be kindergarten through grade 12 teachers, instructors, counselors, principals or aides. They must also work at least 900 hours a school year in a school that provides elementary or secondary education as determined under state law.

Educators should keep receipts when they make eligible expenses and note the date, amount and purpose of each purchase.

Ineligible deductions

Teachers or professors may see advertisements for job-related courses in out-of-town or exotic locations. You may have wondered whether traveling to these courses is tax-deductible on teachers’ tax returns. The bad news is that, for tax years 2018–2025, it isn’t, because the outlays are employee business expenses.

Prior to 2018, employee business expenses could be claimed as miscellaneous itemized deductions. However, under the Tax Cuts and Jobs Act, miscellaneous itemized deductions aren’t deductible by individuals for tax years 2018–2025.

Unforeseen disasters happen all the time and they may cause damage to your home or personal property. Before the Tax Cuts and Jobs Act, eligible casualty loss victims could claim a deduction on their tax returns. But there are new restrictions that make these deductions much more difficult to take.

What’s considered a casualty for tax purposes? It’s a sudden, unexpected or unusual event, such as a hurricane, tornado, flood, earthquake, or fire; an accident or act of vandalism; or even a terrorist attack.

Unfavorable change

For losses incurred in 2018 through 2025, the TCJA generally eliminates deductions for personal casualty losses, except for losses due to federally declared disasters. For example, during 2019, there were presidential declarations of major disasters in parts of Iowa and Nebraska after severe storms and flooding. So victims there would be eligible for casualty loss deductions.

Note: There’s an exception to the general rule of allowing casualty loss deductions only in federally declared disaster areas. If you have personal casualty gains because your insurance proceeds exceed the tax basis of the damaged or destroyed property, you can deduct personal casualty losses that aren’t due to a federally declared disaster up to the amount of your personal casualty gains.

Special timing election

If your casualty loss is due to a federally declared disaster, a special election allows you to deduct the loss on your tax return for the preceding year. If you’ve already filed your return for the preceding year, you can file an amended return to make the election and claim the deduction in the earlier year. This can help you get extra cash when you need it.

This election must be made by no later than six months after the due date (without considering extensions) for filing your tax return for the year in which the disaster occurs. However, the election itself must be made on an original or amended return for the preceding year.

Calculating personal losses

To calculate the casualty loss deduction for personal-use property in an area declared a federal disaster, you must take the following three steps:

1. Subtract any insurance proceeds.
2. Subtract $100 per casualty event.
3. Combine the results from the first two steps and then subtract 10% of your adjusted gross income (AGI) for the year you claim the loss deduction.

Important: Another factor that now makes it harder to claim a casualty loss is that you must itemize deductions to claim one. For 2018 through 2025, fewer people will itemize, because the TCJA significantly increased the standard deduction amounts. For 2019, they are $12,200 for single filers, $18,350 for heads of households, and $24,400 for married joint-filing couples.

So even if you qualify for a casualty deduction, you might not get any tax benefit, because you don’t have enough itemized deductions.

We can help

These are the rules for personal property. Keep in mind that the rules for business or income-producing property are different. If you have disaster-related losses, we can help you navigate the complex rules.

© 2019

It’s not just businesses that can deduct vehicle-related expenses. Individuals also can deduct them in certain circumstances. Unfortunately, the Tax Cuts and Jobs Act (TCJA) might reduce your deduction compared to what you claimed on your 2017 return.

For 2017, miles driven for business, moving, medical and charitable purposes were potentially deductible. For 2018 through 2025, business and moving miles are deductible only in much more limited circumstances. TCJA changes could also affect your tax benefit from medical and charitable miles.

Current limits vs. 2017

Before 2018, if you were an employee, you potentially could deduct business mileage not reimbursed by your employer as a miscellaneous itemized deduction. But the deduction was subject to a 2% of adjusted gross income (AGI) floor, which meant that mileage was deductible only to the extent that your total miscellaneous itemized deductions for the year exceeded 2% of your AGI. For 2018 through 2025, you can’t deduct the mileage regardless of your AGI. Why? The TCJA suspends miscellaneous itemized deductions subject to the 2% floor.

If you’re self-employed, business mileage is deducted from self-employment income. Therefore, it’s not subject to the 2% floor and is still deductible for 2018 through 2025, as long as it otherwise qualifies.

Miles driven for a work-related move in 2017 were generally deductible “above the line” (that is, itemizing isn’t required to claim the deduction). But for 2018 through 2025, under the TCJA, moving expenses are deductible only for certain military families.

Miles driven for health-care-related purposes are deductible as part of the medical expense itemized deduction. Under the TCJA, for 2017 and 2018, medical expenses are deductible to the extent they exceed 7.5% of your AGI. For 2019, the floor returns to 10%, unless Congress extends the 7.5% floor.

The limits for deducting expenses for charitable miles driven haven’t changed, but keep in mind that it’s an itemized deduction. So, you can claim the deduction only if you itemize. For 2018 through 2025, the standard deduction has been nearly doubled. Depending on your total itemized deductions, you might be better off claiming the standard deduction, in which case you’ll get no tax benefit from your charitable miles (or from your medical miles, even if you exceed the AGI floor).

Differing mileage rates

Rather than keeping track of your actual vehicle expenses, you can use a standard mileage rate to compute your deductions. The rates vary depending on the purpose and the year:

• Business: 54.5 cents (2018), 58 cents (2019)
• Medical: 18 cents (2018), 20 cents (2019)
• Moving: 18 cents (2018), 20 cents (2019)
• Charitable: 14 cents (2018 and 2019)

In addition to deductions based on the standard mileage rate, you may deduct related parking fees and tolls. There are also substantiation requirements, which include tracking miles driven.

Get help

Do you have questions about deducting vehicle-related expenses? Contact us. We can help you with your 2018 return and 2019 tax planning.

© 2019