The Tax Cuts and Jobs Act (TCJA) enacted in late 2017 ushered in the most sweeping changes to the United States’ Internal Revenue [Tax] Code in more than 30 years. While the changes do not address the RVer lifestyle specifically, many of the provisions do generally affect RVers—especially those who are actively earning an income while yielding to their nomadic tendencies.
Most of the new tax provisions took effect on January 1, 2018. However, to make sure we don’t miss any tax deductions or other relevant details, now is a good time to review important changes as we prepare for the upcoming tax season. Note also, some tax law changes did not take effect until January 1, 2019 and we’ll touch on those below as well.
Temporary or Permanent
Most of the TCJA changes are temporary, lasting eight years and set to expire December 31, 2025. For the 2026 tax year and thereafter, these provisions will automatically revert to the laws in effect for 2017.
Some of the TCJA changes are permanent. Accordingly, unless Congress acts, these “permanent” changes will remain in effect. In this article, I’ve noted which changes are temporary and which are permanent.
Despite the temporary or permanent nature of the specific tax laws, keep in mind that laws are always subject to change. No doubt, this will be a hot topic during the 2024 presidential election campaign. Since TCJA was largely an effort by the Republican Party, if the Democratic Party makes gains in Congress and the White House as a result of the 2020 election, we could begin hearing about attempts to repeal TCJA provisions as soon as 2021.
Forget Filing Your Tax Return on a Postcard
For 2018, all taxpayers used the new one-page Form 1040, the much-ballyhooed postcard sized form. To shrink the old Form 1040 from two pages to one, TCJA created six new schedules to capture the fifty-six line items that were removed from the previous form. Notably, most taxpayers file electronically and therefore realize no benefit using a shorter hardcopy form. Consequently, for 2019, the IRS has ditched the one-page 1040, expanding it back to two pages while retaining three of the six new schedules from 2018.
Moving The Goal Posts
One of the most significant but least talked about aspects of TCJA is it adopted a different way to calculate inflation, called the Chained CPI (Consumer Price Index). The Chained CPI grows slower (shows a lower inflation rate) than the previously used CPI. This means the income tax bracket thresholds will rise slower as will other IRS inflation-sensitive numbers such as eligibility limits for certain deductions and credits. Going forward, taxpayer incomes are likely to increase faster than the tax brackets thresholds, so taxpayers will move into higher tax rates sooner (and/or no longer qualify for certain deductions and tax credits).
The switch to Chained CPI is a permanent provision. Therefore, the combination of the temporary nature of many of the tax cuts (set to expire after 2025, as explained below) and the permanent switch to the Chained CPI is expected to have the eventual effect of a higher overall tax burden on the middle class.
TCJA Impact on Individual Taxes
What Did NOT Change:
Before diving into the important changes brought about by TCJA, let’s quickly note what is NOT affected by the new tax law.
- Retirement Plans and HSA deductions: contributions to these plans are still deductible as per tax law prior to TCJA.
- Student loan interest deduction: Student loan borrowers may still deduct up to $2,500 on the interest paid for student loans every year.
- Teacher deduction: Teachers can still deduct up to $250 for unreimbursed expenses for classroom supplies or school materials from their taxable income.
- Higher education: The American Opportunity Credit and the Lifetime Learning Credit remain unchanged.
- Self-employed health insurance tax deduction: This popular deduction remains intact.
TCJA Changes Effective January 1, 2019 (Permanent Changes):
Following are two new TCJA laws that did not take effect until January 1, 2019 and both are permanent:
- Affordable Care Act (aka Obama Care).
The individual mandate has been repealed. Beginning January 1, 2019, those who do not purchase health insurance will no longer face penalties on their income tax returns. Beware: don’t overlook that some states are enacting their own state-wide health care individual mandates.
Under the old rule, the individual paying alimony or maintenance payments was able to deduct payments from their income. The person receiving the payments included them as income. Per TCJA, the person making alimony or maintenance payments does not get to deduct them and the recipient does not claim the payments as income. This change affects any divorce or separation agreement signed or modified after December 31, 2018.
January 1, 2018 – December 31, 2025:
- The Personal Exemption has been suspended.
- The Standard Deduction has been increased—nearly doubled.
In theory, not Itemizing means tax preparation has been simplified because taxpayers would not need to track deductions such as medical expenses, mortgage interest, property taxes and charitable contributions. However, one never knows what expenses might arise before the end of a given year. Therefore, we should always keep good records and be able to retroactively calculate Itemized Deductions just in case an unexpected expense puts Itemized Deductions above the Standard Deduction. Also, you may be able to Itemize Deductions on your state tax return even if you don’t qualify to Itemize on your federal return.
TAX TIP: If you fall just short of the new Standard Deduction, you might be able to Itemize if you bunch certain expenses into a single year (e.g. combine multiple years of charitable donations, make a mortgage payment on December 31 instead of January 1, etc).
- Miscellaneous deductions.
Itemized Deductions used to include a category of deductions called, “Job Expenses and Certain Miscellaneous Deductions” but this has been suspended through 2025 by TCJA. Therefore, even if you still have enough deductions to itemize, you can no longer deduct:
- Tax preparation fees.
- Investment fees and safe deposit box expenses.
- Unreimbursed work-related expenses: These are work-related expenses for which your employer does not provide a reimbursement (e.g. the cost of a home office, employer use of a business vehicle, job-search costs, professional license fees, etc). Note, some states still allow deductions for unreimbursed work-related expenses.
TAX TIP for Employees: If you are an employee, many of these miscellaneous deductions are deductible by the business and reimbursable tax-free to you. Ask your employer to reimburse you for these out of pocket expenses. Run the numbers, instead of asking for a raise next year, you may come out ahead on an after-tax basis if you instead negotiate an expense-reimbursement plan with your employer.
TAX TIP for business owners: If you own your own business, follow the same procedure (i.e. have your business reimburse you for business expenses paid with personal funds and/or business use of personal assets such as vehicle, cell phone, internet services, etc). These are deductible by the business and not included in your individual taxable income. Keep in mind too, tax preparation fees related to your business are still tax deductible by the business.
- Child tax credit
The child tax credit was expanded in part, to make up for no more personal exemptions.
- The child tax credit doubled to $2,000 per qualifying child.
- The new rule also allows a $500 (non-refundable) credit per “qualifying” dependent other than a qualifying child (e.g. older children, elderly parents, etc).
- The phase-out income thresholds were increased (e.g. married filing joint income phaseout used to begin at $110,000 and was raised to $400,000).
- Gains on home sales.
You are still able to exclude from income a gain on the sale of your residence (up to $250,000 for singles and $500,000 for married filing joint)—no changes there. However, under the old rules you qualified for this exclusion if you lived in the home a minimum of 2 years out of the previous 5 years…TCJA changed this to 5 out of the previous 8 years.
- New tax brackets.
TCJA retains the seven tax brackets for individuals, but the brackets have been modified to lower most individual income tax rates. For example, the 28, 25 and 15 percent brackets were reduced to 24, 22 and 12 percent respectively. Also, the income thresholds were raised for each bracket allowing more income to be taxed at the lower rates.
- Pass-through Business Income deduction (Section 199A).
Under TCJA, pass-through business owners can deduct up to 20 percent of their qualified business income (QBI) from an LLC, partnership, S corporation or sole proprietorship (and in some cases, the deduction is allowed for rental real estate income). Note that this deduction is taken on your Individual tax return.
- The QBI deduction is subject to various qualifying tests, thresholds and phaseouts.
- This is perhaps the most complex TCJA change and requires more space than available to discuss in this article. For more information, go to https://www.irs.gov/newsroom/tax-cuts-and-jobs-act-provision-11011-section-199a-qualified-business-income-deduction-faqs or consult with your tax-preparer.
TCJA Impact on Business Taxes (All Permanent Changes):
- Flat 21 percent income tax rate on corporations.
The old eight-bracket tax table for corporations has been replaced by a single 21-percent tax rate—a major simplification and places the United States under the global average corporate tax rate of approximately 25 percent.
- Entertainment deduction permanently eliminated.
Under the old rule, 50 percent of a business’ “meals and entertainment” expense was deductible. Under TCJA, 50 percent of meals expense is still deductible. However, entertainment expense is no longer deductible in any amount…no more tax write-offs for golf games or attending sporting events with your VIP customers and business partners.
- More generous depreciation rules.
There are a variety of new ways businesses can speed up depreciation and in some cases take 100% depreciation in the year of purchase for qualifying assets. For more details, go here: https://www.irs.gov/newsroom/tax-cuts-and-jobs-act-a-comparison-for-businesses.
We’ve only touched on the tip of the TCJA “iceberg”, but I’ve selected the items I felt are most relevant to full-time RVers, including those who are active income earners as employees or business owners. As always, please consult your tax expert if you have questions or need clarification on any of the above.
DISCLAIMER: The information and materials we share in this article are intended for reference only. As the information is designed solely to provide guidance to the readers, it is not intended to be a substitute for someone seeking personalized professional advice based on specific factual situations. Therefore, we strongly encourage you to seek the advice of a professional to help you with your specific needs.
Tim Ewing – Certified Public Accountant (CPA)
Tim began the full-time RV life in 2014 and works full-time from the road providing profitability and growth advisory services to business owners. Tim is also a CPA and helps self-employed RVers unload their bookkeeping burdens and avoid IRS headaches. You can reach Tim at firstname.lastname@example.org or 757-771-2557.