There’s been a lot of confusion regarding the impact of the Tax Cuts and Jobs Act of 2017 (Also known as TCJA, or as the “Trump Tax Cuts”).
One particular source of such confusion is regarding the loss of certain itemized deductions — previously included as part of the “Job Expenses and Certain Miscellaneous Deductions” section on the Schedule A. This is where some people had previously been able to take deductions for various items including unreimbursed employee expenses (job travel, union dues, job education, work uniforms — and the use of a home office). Note that these deductions were only available if (a) they were legitimate employee expenses (ie. clothes you could wear for something other than work — like a business suit — never counted. Only actual uniforms.); and (b) you paid out of your own pocket for those expenses and your employer did not reimburse you.
A couple of other items often commonly showed up under this set of deductions, too — perhaps more commonly than the business expenses: tax preparation fees and investment expenses (including investment advisory services and even safe-deposit box fees).
Moreover, that deduction was severely limited.
First, you only got it if you itemized in the first place. If you, like some 70% of taxpayers, were taking the standard deduction — then they didn’t affect you.
And additionally, even if you were itemizing, these deductions were limited by a 2% floor — meaning that you only got to take the deduction to the extent that the combination of these miscellaneous deductions exceeded 2% of your adjusted gross income.
So if you made $100,000 and itemized (say, because you have a mortgage and property taxes and a state income tax) — then you still only got this deduction to the extent that these expenses exceeded $2000. If, after all that, you then spend $2200 on such expenses — you only got a $200 tax deduction.
So very few people were taking these deductions. Nevertheless, for those for whom they applied, they could be substantial.
That whole section of “Miscellaneous Deductions” was eliminated under TCJA.
This will, however, at least be somewhat offset by the new much larger standard deduction. Even though some 70% of taxpayers weren’t itemizing before, it is likely that far more people will now be taking the standard deduction going forward — estimates (and this is still very early to make such estimates) have indicated that as many as 90% of taxpayers will be taking the standard deduction — not itemizing — under the new rules.
Nevertheless, the loss of these deductions has led to some confusing headlines out there, particularly regarding business expenses such as the home office deduction. The confusion comes about because these deductions — the unreimbursed employee expense deductions — were eliminated but they only affect people who are employed by someone else.
These deductions were eliminated from the Schedule A — ordinary itemized individual deductions.
Business expenses paid for by a business are still generally deductible for the business itself.
That means that if you were taking any business deductions — including for a home office, office supplies, etc — for self-employment — you will likely still be taking those same deductions because they were never deducted on Schedule A. They were generally deducted either on a Schedule C (for pass-through self-employment sole proprietors) or on the business’s own tax return (ie. if the business is a partnership, LLC, or s-corp).
The bottom line is this — if you were taking these deductions — including the home office deduction — as an “unreimbursed employee expense” under the “miscellaneous deductions” when doing ordinary itemized individual taxes (ie., Schedule A) — you may have lost the deductions under TCJA.
But if you’re self-employed? You very likely still get the same deductions. (And may even be getting a new additional “Qualified Business Income” tax deduction for pass-through businesses. Definitely consult with your accountant or tax professional regarding this!)
TCJA did not entirely eliminate the home office deduction. It only limited it to the self-employed.
If you have any questions about this, we highly highly recommend consulting with a qualified tax professional.