There is one other major difference for taxes coming up that I didnt mention: The increased itemized deduction limit. To explain this though, Ill give you some background.
When people (normal people, not you crazy freelancers) talk about tax deductions they are talking about itemized deductions. Itemized deductions come in four major flavors:
- Medical
- Taxes (state and property),
- Mortgage interest
- Charity
- Other
Youve likely all heard of people losing a bunch of deductions in the news – employees cant deduct their expenses, legal fees, bike commuter deductions, a whole bunch of random stuff. All that junk is in the other category. And it basically all got blown out. Many people are mad about this, but I actually think it makes sense. Because in this one case, they actually did pretty effectively what they were trying to do – which was make taxes easier.
Wait, what?!? Congress made taxes easier?!?!
Yes, for the vast majority of Americans, taxes got a lot easier. Remember that all those deductions totaled up are your itemized deductions. Everyone takes the greater of the itemized or the standard deduction. So, while your state tax deduction might go down and the random little things might have gone away (which require more work to do) they ALSO raised the standard deduction. And by Quite a bit: to $12,000 for a single person and $24,000 for a married couple.
This means that a LOT of people dont have to do any additional work (no more tags from the bags of clothes to charity, no more letters from Salvation army, no more DMV tags – ALL that crap is done). They just take their $24,000 and move on. It makes life a LOT easier.
So unless you mortgage interest and charity and state taxes total more than $24k ($12k single people) then dont bother. Even though this means, in most cases, less work for tax accountants – I am really pleased to see this. I always hate making money on bullshit compliance. Its a low value add, everyone hates, and its tough to make real money.
Taxes shouldnt be a massive headache, especially for the general population. If you run a business – that might be a different story. But a normal W-2 employee shouldnt have to hire a professional to be in compliance with the government regulations. I think thats a sign of things going too far.
So, this is your quick primer on deductions. Unless you have a lot of taxes, charity, and mortgage interest, your life is likely easier. And so is mine. Dont send me all those freaking receipts for that crap – I don’t want it and it doesnt matter!
PS: Medical only counts when it is in excess of 7.5% of your income. So unless you went to the hospital for something, dont bother.
PPS: The deduction we refer to here are for individuals. We are not talking about business deductions. If you have a business, all the same rules that used to apply, apply still.
