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Worldwide ERC®’s 2018 U.S. Filing Season Tax Tips for Transferees

The 2018 U.S. tax filing season begins January 28, 2019, according to the Internal Revenue Service (IRS). To assist transferees with preparing their 2018 returns, Worldwide ERC® provides annual filing season tips. This year’s information is lengthier than usual, tailored to the numerous tax changes for 2018, and delivered in language that can be shared directly with the transferee.

Moving Expenses

The moving expense deduction was suspended for 2018 through 2025 in the tax reform act of 2017. Therefore, moving expenses will not be deductible on your 2018 federal tax return.  However, there are some circumstances in which you may still be entitled to moving expense breaks.

  • The suspension does not apply to members of the active duty military moving pursuant to a military order incident to a permanent change of duty station.
  • If you completed a move in 2017, but your employer reimbursed you, or paid for, deductible expenses in 2018, those items remain excludable from your 2018 income.  Be sure to check your W-2 to make sure those amounts have not been included in your income.
  • Some states continue to allow deductions and exclusions for moving expenses that were deductible under the federal tax code prior to 2018.
  • States that allow a deduction:  Arizona, Arkansas, California, Hawaii, Iowa, Massachusetts, Minnesota, New York, Pennsylvania, and Virginia.
  • States that allow an exclusion:  The 10 states above, plus New Jersey.
  • Carefully check your W-2 if you moved to or from one of those states to be sure deductible moving costs paid or reimbursed by your employer were not included in state income.

If you are deducting moving expenses on a state return, or are a member of the active duty armed forces moving pursuant to a military order, here are several items deductible as moving expenses that are sometimes overlooked:

  • Tips to the moving van driver or helpers.
  • Mileage for driving second or third cars to the new location (in addition to the first car). The deduction for 2018 is 18 cents per mile.
  • Lodging expenses in the departure location for one night after the household goods are packed, and one night in the new location on the day of arrival.
  • Moving household goods from a location other than your main home, up to what it would have cost to move them from the main home
  • Storage of household goods for up to 30 days, including the cost of moving the goods into and out of storage.  Note that the costs for moving the goods into and out of storage remain deductible even if the goods are in storage more than 30 days.
  • Expenses not reimbursed by your employer, such as extra crating, shipment of unusual items, tips to van line staff, etc.

Other filing season tips:

  • If the seller of your new house agreed to pay part of your mortgage points instead of reducing the sales price, the IRS says you can deduct those points, even though the seller paid them.
  • If you ever refinanced your mortgage, don’t forget to deduct the entire remaining balance of points paid on the refinancing in the year you sell your home.
  • If your new job is for a different employer, and you earned a total of more than $128,400 in 2018, you may have had too much deducted as contributions to Social Security. You can take a credit for the excess over $7,960.80 on line 72 of Schedule 5 of your Form 1040 tax return.  However, you may still owe the additional 0.9% Medicare tax that went into effect in 2013 if combined wages from both employers exceeded $200,000, or if your wages combined with those of your spouse exceeded $250,000.  In such a case, you will need to file Form 8959 to report the additional tax (which applies to amounts in excess of the thresholds above) and include it on line 62 of Schedule 4 of the Form 1040.
  • If you moved to one of the states with state and local sales taxes but no general income tax (Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, or Wyoming) you may benefit from an itemized deduction for state sales taxes. The deduction was reauthorized and made permanent by Congress in 2016. (Note that beginning in tax year 2018 the total deduction for sales tax, property tax, and income tax cannot exceed $10,000.)

Other significant changes made by the 2017 tax reform law:

  • The standard deduction is substantially increased ($24,000 for married couples filing a joint return, and $12,000 for singles) but you are no longer allowed a deduction for personal exemptions.
  • The child tax credit is increased to $2,000 per child 17 years old and younger, with an additional $500 credit for other dependents.
  • The mortgage interest deduction is limited to mortgage debt of $750,000, but interest on pre-existing mortgages remains subject to the old limit of $1 million.
  • Interest on $100,000 of home equity debt is no longer deductible, unless the debt was incurred to acquire or substantially improve your home.  This rule applies to all home equity debt, whether incurred before or after 2018.
  • Medical expenses that exceed 7.5% of Adjusted Gross Income (AGI) are deductible by all taxpayers.  The old threshold was 10%, except for seniors.
  • There is no deduction for miscellaneous itemized expenses.  This means, for example, that employees are no longer allowed to deduct expenses for a home office or other costs associated with their jobs.
  • As noted earlier, the deduction for state and local taxes is limited to $10,000 for both singles and married couples filing joint returns.

The 2018 return will be due on Monday, April 15, 2019, except in Maine and Massachusetts: the occurrence of the Patriots’ Day holiday on April 15 in those states, and the Emancipation Day holiday observed on Tuesday, April 16, in Washington, D.C. shifts the due date in Maine and Massachusetts to Wednesday, April 17.

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