The Tax Cuts and Jobs Act of 2017 (Sec. 199A) continues to impact tax preparation changes, starting with your 2018 taxes. That means what you are doing now and how you are documenting it matters. We recently reviewed the changes to business entertainment expenses.
Coming on the heels of those changes in taxation are new updates on how moving and mileage expenses will be affected. These tax law changes have the potential to affect both your business tax return and your personal tax return.
How Your 2017 Taxes May Have Looked
Before 2018, tax deductions were available for moving and mileage expenses. If you moved more than 50 miles to be closer to a job, or if you started a new job or a business, and worked 39 weeks the first year, the moving expenses could be deducted at 17 cents per mile in 2017.
Likewise, if you traveled and/or drove for your job, such as to meetings at off-site locations (not to and from your primary office), that mileage could also be deducted at 53.5 cents per mile (the 2017 rate). You also had the option to calculate the actual cost of using your car for business and deduct the depreciation instead of taking the standard mileage rate deduction. The depreciation rates were set at a limit of $27,300 – $31,000 (depending on the type of vehicle).
Companies that offered employees relocation packages, including covering moving expenses, would often pay for those expenses by issuing the employee a check. That payment was typically NOT included as part of the employee’s reported income. Similarly, if a company reimbursed an employee for mileage, that reimbursement was also not included as income.
These deductions and reimbursements were important to both employees and companies to help “sweeten” compensation and benefits packages without increasing the employee’s salary or take-home income. Starting with 2018 tax preparation, things will be different.
Changes to 2018 Taxes
As of January 2018, when the Tax Cuts and Jobs Act went into effect, moving expense deductions are suspended through 2025. Also suspended is the exclusion of travel and mileage reimbursements from the employee’s income. If a company offers an employee $2,000 in moving reimbursements, the employee adds $2,000 to his or her annual income. If the employee receives reimbursement for mileage from the company, instead of itemizing the deduction on his or her taxes, that reimbursement is also included as part of the employee’s income.
Although there is an exception to the new tax changes. Active-duty members of the Armed Forces, along with their spouses and dependents, may still claim moving deductions or exclude moving reimbursements from their income if they moved because of a military order calling for a permanent change of station.
The good news: taxpayers can still deduct mileage from their tax returns. And the mileage rate for 2018 has even gone up to 54.5 cents per mile. If you opt to calculate the actual cost of using your car for business rather than using the standard mileage rates, the depreciation limits have also increased in 2018. As of January 1, the maximum standard cost can go up to $50,000 for passenger vehicles.
Moving Forward with Tax Preparation Changes
The bottom line is that moving expenses are no longer deductible and moving reimbursements are no longer tax-free, as they once were. However, you can continue to track and deduct mileage for using your vehicle for business purposes, or calculate the cost of using your vehicle, both at higher rates than 2017. Of course, this is just one way that the Tax Cuts and Jobs Act will impact your 2018 taxes and business tax return. For the best strategies in your 2018 tax preparation changes, documenting and deducting, reach out to Stableford Capital tax specialists today by calling the main tax line at 480.998.0911.