The New Tax Law in Action

A few years ago, taxpayers saw many changes effective with the 2018  tax year. Here are just a few. For charitable contributions there are new  substantiation requirements encompassing both tax law changes and strict IRS enforcement,  it is no longer practical to "guess" at the value of non-cash contributions. We are warning you that, unless you substantiate your non-cash contributions with the following documentation, the IRS will disallow your non-cash charitable contributions. You should prepare and retain

• a detailed list of items contributed
• the fair market value (usually thrift-shop value) of each item or class of items
• the original value when purchased or otherwise received
• the source of the valuation. For example, we recommend using Intuit's "It's Deductible" software for this purpose. Click here to see this software. There are also several valuation guides online at the websites of major charities such as the Salvation Army or Goodwill.
• detailed photographs of the items
• a written acknowledgment from a qualified charity which specifically states that no goods or services were provided in exchange for your contributions

Public Safety, Medical and Teachers' Work Expenses  For purposes of their federal tax returns, our clients have been seriously impacted by the complete elimination of the ability to deduct their employee expenses as itemized deductions on Schedule A. All that is left for any of these groups of professionals on a federal tax return is a  $250 deduction limited to K-12 teachers. These expenses are scheduled to return for tax year 2026. But if you will be filing a California tax return, see the next paragraph.

California Based Clients  Residents of California, saw no change in their ability to deduct all of the same expenses as in prior years for their California tax returns.  This is because California did not change state law to conform to the changes in federal tax law. As a result, our checklists for Public Safety, Medical Professionals and Educational Professionals have not changed, except they may only be used for California tax return purposes.

The General Checklist Designed for use by those clients who do not fit into the three categories above, or for retired clients, a similar situation arises. For many of our clients, their only "out-of-pocket" expense is that of union dues. Union dues are among the expenses no longer deductible for federal purposes but  still deductible for California. 

Small Business Taxes There are both minor and major changes in the area of small business, which encompasses both sole proprietorships and Single Member LLCs (SMLLC). On our Small Business Checklist you will see the category of "entertainment" applies only to California Taxes. Federal law eliminated entertainment as a deduction effective in 2018. Entertainment includes rounds of golf, entertainment tickets, and sports event tickets and similar expenses. Entertainment, however, does not include business meals with clients. This is still a deductible expense for both federal and state taxes, but, it should be noted is a very frequently audited issue.