⚡ Get All Content for 20% Off ⚡

5 Tax-Deduction Changes in the Trump Tax Plan You Need to Know About This Tax Year Deduction changes are coming for meals and entertainment, business automobiles, mortgage interest, alimony and medical expenses.

By Tom Wheelwright

entrepreneur daily

Opinions expressed by Entrepreneur contributors are their own.

Shutterstock

Given the mass confusion over the new Trump tax plan, small business owners need to get educated now about what deductions have changed, because this information will impact their everyday decisions this tax year, 2018.

Related: Tax Deductions Your Small Business Can't Afford to Miss

After reading ovder the entire 1,097-page Tax Cuts and Jobs Act, twice, I can point to five important deduction changes regarding meals and entertainment, business automobiles, mortgage interest, alimony and medical expenses.

Overall, most Americans are likely to receive some type of tax break, and business owners are definitely the big winners there. The biggest benefits will go to corporations, which will get a 14 percent tax cut, followed by small business owners and real estate investors, who'll get a 20 percent pass-through deduction.

What about changes in deductions? Here they are:

1. Meals and entertainment

As a business owner, you can still deduct your meals, but no longer entertainment. For example, if you take your team to a baseball game, you can write-off the hot dog, but not the game. Many companies will insist on allowing employees to only take clients out for a meal, because that continues to be deductible.

2. Business automobiles

The biggest change in deducting automobiles is an increased deduction for car depreciation for cars used for business. This change will most likely result in more business owners buying cars versus leasing. With the Trump tax plan, you can take an $18,000 deduction for a new car the first year you own it. If you buy an SUV or a truck, the vehicle is 100 percent deductible.

Related: 5 Legal Tax Deductions Small Business Can Maximize

3. Mortgage interest

If you had a mortgage, the rules don't really change, except to eliminate the deduction for interest on home equity lines of credit.

If you're buying a new house, the mortgage interest deduction does change. If you buy something over $750,000, you're not going to be able to deduct as much. For taxes, the plan affects anyone with both a house and state income taxes,since the combined deduction limit is now $10,000.

This reduction in mortgage interest deductions and property tax deductions means that there will be less of an incentive to buy a house. The strong implication of the new tax law is that it's much better to own a house as an investor than to own it and live in it.

4. Is your alimony deductible?

Alimony is still deductible, but only if you get divorced by the end of 2018. There must be a senator getting divorced this year because this is the only new provision in the bill that doesn't take effect until 2018!

In the past, alimony has been deductible for the spouse paying it, and taxable for the spouse receiving it. With the new plan, anyone who gets divorced after December 31, 2018, will no longer be able to deduct alimony. Anyone who is planning to get divorced soon should make sure the divorce is final in 2018, if he or she is paying alimony. Anyone on the receiving end may want to delay the divorce until 2019.

5. Medical expenses

The new tax law allows for more deductions for medical expenses. For 2017 and 2018, medical expenses have and will be deductible if they exceed 7.5 percent of your AGI (adjusted gross income). In 2019, this threshold will increase to 10 percent of your AGI.

For now, the most important thing an entrepreneur or small business owner should do is talk to a great tax advisor who has studied the new law so you know what is deductible for your situation. Get educated sooner versus later so you can decide if you need to make any changes to your business, investments and day-to-day record-keeping.

Related: Trump's Tax Plan Could Help Businesses, But Questions Remain

Getting informed is especially important if you own a small business or invest in real estate. It's an exciting time, and your actions now will make a big difference in how much money you keep in your pocket.

Tom Wheelwright

Entrepreneur Leadership Network® Contributor

CPA, Author and Founder and CEO of WealthAbility

Tom Wheelwright is a leading tax and wealth expert, CPA and author of "Tax-Free Wealth." As the CEO of WealthAbility®, Wheelwright helps entrepreneurs and investors build wealth through practical strategies that permanently reduce taxes.

Want to be an Entrepreneur Leadership Network contributor? Apply now to join.

Side Hustle

The Remote Side Hustle a 43-Year-Old Musician Works on for 1 Hour a Day Earns Nearly $3,000 a Month: 'All From the Comfort of Home'

Sam Ziegler wanted to supplement his income as a professional drummer — then his tech skills and desire to help people came together.

Business News

Costco CFO Reveals Uncertain Fate of $1.50 Hot Dog and Soda Combo

CFO Richard Galanti reveals that the price will stay the same — but only "for a while."

Business News

The Most Unexpectedly Popular Side Hustle of the Decade Has Low Startup Costs and High Markups

A new report shows that vending machines are a popular investment — and the industry is set to grow up to $3 billion by 2031.

Marketing

Ever Wonder Why Certain Websites Rank Higher Than Yours? This SEO Expert Reveals The Secret to Dominating Search Results

It's often the smart use of SEO, now supercharged with AI, particularly in keyword optimization.

Business News

AI Is Impacting Jobs. Here Are the Gigs Affected the Most, According to an Analysis of 5 Million Upwork Postings

The researcher said in the report that freelance jobs were analyzed first because that market will likely see AI's immediate impact.

Leadership

Former Interrogator Shares 5 Behaviors Liars Exhibit and How to Handle Them

Five deceptive behaviors to look for and how to respond to those behaviors when you encounter them.