By now, we are all aware of the new tax reform bill and many have already seen changes reflected in their paycheck. However, the number one question still on the minds of many is: HOW DOES IT AFFECT ME??
The Tax Cuts and Job Act will not affect the 2017 taxes that you are filing in April 2018. This act will impact the 2018 tax year with an April 2019 filing date. Affecting both individuals and corporations, the 2018 tax reform has the most changes the United States has seen in the last 30 years. For individuals, the bill reduced income tax rates, eliminated personal exemptions, and doubled the standard deduction.
The highest income tax rate was reduced from 39.6% to 37%. Please keep in mind that this benefit is only temporary. In 2026, we will revert back to 2017 tax rates. BUMMER!! The standard deduction was doubled from $6,350 to $12,000 for individuals filing single ($18,000 for head of household and $24,000 for married). Due to the increase in the standard deduction, there will be a drastic decrease in the amount of filers able to cross the threshold to itemize their returns (Schedule A form). On a positive note: if you are taking the standard deduction as opposed to itemizing, then your days of keeping track of receipts are over!!!
There were also several itemized deductions either eliminated of limited. Though you can still deduct state and local taxes and property taxes, these are now capped at $10,000. Are you in the market to purchase a new home? Well, the new reform bill has reduced the limit for those claiming a deduction on mortgage interest. In 2017, homebuyers could itemize and deduct the mortgage interest payments for homes with a mortgage that did not exceed $1million. Now, the mortgage amount is limited to $750,000. Please note, this will only affect new homebuyers. So… if you purchased your million dollar home last year… you’re good!!!
Another major change to note is the adjustment in the child tax credit which increased from $1,000 to $2,000 per qualifying child. Prior to the Act, taxpayers could subtract $4,150 from income for each person claimed. Going forward, personal exemptions are eliminated. This will greatly affect those households with many children.
Other noteworthy changes:
- Alimony payers can no longer deduct payments and the recipients are no longer required to report income (effective for filings after December 31, 2018).
- Moving expenses are no longer deductible, excluding military personnel relocating due to military order
I hope this brief overview has given you some additional insight into what to expect with you 2018 tax year. Feel free to contact me through the CONTACT US tab if you have additional tax questions.
