The 2018 Tax Cuts and Job Act (TCJA) will affect most taxpayers, although the new law won’t affect taxes for 2017 (the return you file in 2018). Of the seven income brackets that determine a person’s tax rate, only a slight reduction in income tax occurs in five of the categories. For many individual and married filers, the most significant change is the elimination of certain deductions on itemized returns.
Can I Still Take a Personal Exemption?
The TCJA eliminates the personal exemption and increases the standard deduction. Previously, an individual filer would take a $6,500 standard deduction and a $4,150 personal exemption for a total of $10,650 in income exclusion. Now, the standard deduction is $12,000. It is not exactly double, but it is an improvement. It also simplifies the process.
What are the Changes for Married Couples?
The so-called Marriage Penalty for couples filing jointly is scaled back. Whether a couple files separately or together, they remain in the same tax bracket. For most couples, it is no longer advantageous to submit individual returns. Only those earning more than $400,000 will experience the previous tax discrepancy.
Can the Interest on a Home Equity Loan Be Deducted?
You previously could deduct up to $100,000 in interest. Now, you can still take the interest on your mortgage for loans up to $750,000. Deducting the interest on home equity is eliminated and applies to loans completed after December 17, 2017. Those established before that date are grandfathered.
What Are Some of the Other Deductions That Have Changed?
- 529 College Savings Plans – You can now use them for other expenses like private school or special tutoring
- Medical Expenses – These are lowered to 7.5% of your adjusted gross income (AGI)
- State & Local Taxes – They are now limited to $10,000, a point of contention with high-tax states
- Child Tax Credit – Increased to $2,000 for children under the age of 17. The amount of refundable credit increases to $1,400
- Tax Preparations – Eliminated
- Moving Expenses – Eliminated
- Casualty and Theft Losses – Eliminated
- Employer-Subsidized Parking and Transportation Reimbursement – Eliminated
- Unreimbursed Employee Expenses – Eliminated
Should I Consider Not Itemizing Future Tax Returns?
That is the big question. The Joint Committee on Taxation estimates 94% of filers will go with the new 2018 standard deduction compared to 70% of filers last year. Because the standard deduction is increased, itemizing may not be your best option. Calculate your taxes both ways and see which is to your advantage. If you are confused with the changes to the tax code, talk to a tax professional. They know the intricacies of the new tax reform and can advise you on the best plan for you and your family.
Dutton Legal Group – Indiana’s Tax Resolution Law Firm
Dutton Legal Group helps the people and businesses of Indiana navigate ever-changing State and Federal tax codes. Our goal as experienced tax attorneys is to assist you in finding an immediate, cost-effective answer to your tax challenges. We provide a variety of tax services from balance resolution and return preparation to wage garnishment relief and audit assistance. Stop worrying about your taxes and how the TCJA affects them. Make Dutton Legal Group your next call at 1-800-334-0255 or send an email to request a free consultation. Trustworthy and affordable, for over 15 years.