Impact of tax law changes on your return this year

The Tax Cuts and Jobs Act of 2017 resulted in the most significant changes to tax laws that we have seen in decades.  It would take a lot of time to go through all of the changes, but here are some of the changes that are most likely to impact you when you go to file your taxes this year:

·        Increase in the standard deduction –

o   Change - the standard deduction went from $6,350 for single tax filers in 2017 to $12,000 in 2018 while married filing jointly and head of household increased from $12,700 in 2017 to $24,000 in 2018.

o   Impact – Depends – anyone who did not itemize in previous years will see a large impact on their tax returns this year.  For those people who itemized in previous years, the impact may not be as large.  If your total itemized deductions were already close to $24,000, there will not be much change in your return.  In addition to not seeing much of a difference in your tax return, the increased standard deduction also indirectly minimizes some of the benefits associated with some of the itemized deductions.  For example, mortgage interest is one of the most common itemized deductions.  Many homeowners will no longer see that “tax discount” on their mortgage interest as they did in the past.

·        State, local and property taxes deductions capped at $10,000 –

o   Change – generally used to be able to deduct all state/local/property taxes, but it is now capped at $10,000

o   Impact – it will make it even more difficult to itemize your tax return.  With the increased standard deduction (discussed above), plus the limitation on your “taxes paid” deduction, getting above the $24,000 standard deduction becomes less likely.  This will have a larger impact for people who live states with high income and property taxes (i.e., California, New Jersey, New York, etc.).

·        Personal exemption eliminated

o   Change – Personal and dependent exemptions ($4,050 previously) were eliminated

o   Impact – You will no longer be able to reduce your taxable income for yourself and any dependents.  This means your taxable income will be higher.  Other changes may offset the lack of personal exemption, but it depends on your individual circumstances.

·        Child tax credit

o   Change – Increased from $1,000 to $2,000 per child and increased income thresholds

o   Impact – Positive – not only is the credit doubling, the income thresholds for phasing out the tax credit are increasing as well.  If you were able to previously claim the tax credit, you are automatically going to receive an additional $1,000 for each child (remember, tax credits are dollar for dollar savings – every dollar is money back in your pocket!).   For those people who were unable to previously claim the tax credit, you may be able to now with the increased thresholds.  Previously, the tax credit would start to phase out at $75,000 for individuals and $110,000 for married couples filing jointly, but this has now increased to $200,000 for single/head of household filers and $400,000 for married filing jointly filers.

These are just some of the changes to the new tax laws.  Contact us today to discuss how your specific tax return may be impacted.