This Upcoming Election Is a Personal Matter to You

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With election day in plain view, most are anxious about the pending results and what such outcomes will mean to us individually and collectively. Regardless of which administration gets elected, it will likely impact us because we are part of this universe “tied in a single garment of destiny. Whatever affects one directly, affects all indirectly.” — Martin Luther King, Jr.

So, Let’s Get Personal About Taxes — Personal Tax Deductions. 

The current Tax Cuts and Jobs Act (TCJA) was enacted under the Trump administration in 2017. TCJA overhauled how individuals deduct expenses by eliminating most of them, which resulted in many taxpayers facing a much higher tax liability. (Note: this law expires at the end of 2025.)

I would be remiss if I didn’t share the upside of the TCJA. There was an increase to the standard deduction, which benefited some individuals but did not help those with large itemized deductions and most homeowners. Additionally, the highest tax rate for individuals was lowered from 39.6% to 37%. However, some taxpayers did not benefit from the lower rate due to the limitation on legitimate personal expenses. Tax is not a one-size-fits-all. An individual tax obligation is unique to that person. Furthermore, many employers do not reimburse employees for job-related expenses. Some by choice, while others cannot afford to. 

So, what were some of those Personal Tax Deductions eliminated or limited under the Federal rules? Here are a few:

Eliminated:

  • Unreimbursed employee job-related expenses include local transportation, travel, meals, clothing, computers, phones, professional dues, memberships, training, etc.
  • Home office deduction given the hybrid work environment, this is a lucrative expense for many individuals. 
  • Others are moving expenses, investment advisors’ fees, alimony payments, etc.

Reduced/Restricted:

  • State and Local Taxes Paid (SALT) —  capped at $10,000, including payroll, state and local taxes, property/home real estate tax, sales tax on large purchases, and other personal property taxes. Individuals who live in a state which tax individual income are hurt the most.
  • Mortgage Interest Deduction — reduced from $1,000,000 to $750,000 (or $375,000 for some homeowners); in an era of rising home prices, thus higher mortgages. 

To add some context on how backward the mortgage limitation rule is, here is a little history:

The mortgage interest deduction is over 100 years old, according to an article written by Bankrate.com.

  • Home mortgages taken out before Oct. 13, 1987, have no cap or upper limit. 
  • For homes purchased between Oct. 13, 1987, and Dec. 16, 2017, single and joint filers can deduct the mortgage interest paid on their first $1 million in mortgage debt ($500,000 for those married filing separately).
  • Mortgages on homes after Dec. 17, 2017, reduced the maximum loan amount to $750,000 ($375,000 for those married filing separately).

So, let’s put the above in perspective through a real-life scenario. An article in the NY Times dated Mar. 15, 1987, noted the listing price of a two-bedroom apartment at Schwab House was $330,000. As of the writing of this article, a current listing price for a 2-bedroom Schwab House apartment is $1,695,000 (see the link for the current listing).

While it is not possible in one article to list the profoundly negative impact of TCJA on individuals who itemize their expenses (job-related expenses, owning a home, paying state/local taxes, etc.), keep this in mind. Since 2018, many taxpayers have faced a higher tax liability and have not been better off.

In closing, we have experienced Trump’s administration and leadership approach — however, we have not yet experienced Kamala’s administration and her leadership approach. In his book, Road Less Traveled, author M. Scott Peck, MD., distinguishes between two government philosophy styles, capitalism, and communism, and how these leadership styles carry out their roles in an unhealthy manner.

  • Pure capitalism adopts a philosophy that espouses the destiny of the individual, even if it is at the expense of the relationship and the collective society. In such a leadership style, the author notes that “widows and orphans may starve.” The least among us are not cared for. 
  • Pure communism expresses a philosophy that the purpose and function of the individual is to serve the relationship, the group, and the collective—the society. Only the state’s destiny matters; the individual’s destiny is unimportant. 

The Good Book reminds us that we are duly responsible for caring for “the least” among us: the least privileged and less fortunate. Since we are all a part of this nation, each person’s well-being depends on the well-being of society. The well-being of humanity depends on the well-being of each person. 

Because I know you care for others, I believe you will vote wisely and thoughtfully. It is personal.

Thank you for reading. I hope something of value resonates with you. 

Nadine Riley, CPA
Founder, Masterpiece Accounting Group
Phone: (212) 966-9301
Email: info@mpagroupllc.com

The Masterpiece Accounting Group web, blogs, and articles are not rendering legal, accounting, or other professional advice. Tax strategies and techniques depend on your specific facts and circumstances. You should implement the information in this newsletter only with the advice of your tax and legal advisors.