2018 Tax Considerations for California Residents:
The new federal tax law has limited and eliminated various Itemized Deductions reported on the federal form Schedule A. But, as of June 16, 2018, California has given no indication that these expenses will be limited and/or eliminated on the 2018 California tax return. Consequently, California may allow deductions on the 2018 tax return that will not be allowed on the 2018 federal tax return.
Federal deduction for State & Local Taxes (including Property, DMV, etc.) capped at $10,000:
California has not capped the amount of 2018 deductible Taxes at $10,000, as has been done for the federal return. Although State Income Tax is not deductible on the California tax return (and was not previously), Californians often pay a significant amount of Real Property Taxes, DMV taxes, Personal Property Taxes, etc. that result in the deductible amount of taxes on the California return to exceed $10,000. Consequently, taxpayers should continue to maintain accurate records of these amounts to ensure the maximum allowable deduction is taken on the 2018 California tax return.
Casualty and Theft Losses:
Beginning in 2018, Casualty and Theft Losses will no longer be allowed on the federal tax return, unless they are Casualty Losses that are the result of a federally declared disaster. Currently, such losses are still deductible on the California tax return. Therefore, be sure to keep detailed records in the unfortunate event that these losses apply to you.
Miscellaneous Deductions Subject to 2% of AGI:
Taxpayers were previously allowed a deduction for Miscellaneous Itemized Deduction Subject to 2% of AGI on their federal and California returns. For many taxpayers the deduction primarily related to Unreimbursed Employee Expenses. Beginning in 2018, these deductions have been eliminated by the new tax law for federal returns, but they have not been eliminated for California. Some of the potential Unreimbursed Employee Expenses include: Unreimbursed Mileage and the Home Office deduction. Other Miscellaneous Itemized Deduction Subject to 2% of AGI are: Investment Expenses, Union Dues, Tax Preparation fees, etc. These expenses will no longer be deductible on the federal tax return, as mentioned above, but California has given no indication that they will not be allowed deductions on the 2018 tax return. If taxpayers have taken these deductions in previous years, or believe they will in 2018, they should continue to track these items and maintain documented support (e.g. mileage logs, phone bills, etc.).
What this means:
Although California could potentially conform to the new federal tax laws, i.e. eliminate/limit deductions, it would be in California taxpayers’ best interests to continue to track and keep records of all 2018 State & Local Taxes, Casualty and Theft Losses, and Miscellaneous Itemized Deduction Subject to 2% of AGI. In the event California decides that it wants to conform, it is uncertain whether California will be able to pass conforming legislation before the deadline that the Governor must sign or veto legislation – of September 30, 2018. For this reason, it would be my prediction that California and federal conformity will not occur for the 2018 calendar tax year.
If you have any questions about these or other issues, please contact Scott at (909) 792-5056.