Unfortunately, tax time is coming up. And U.S. taxpayers will face many tax changes for their 2018 taxes. That’s because of the tax bill that President Donald Trump signed.
While some people, mainly corporate business owners, will benefit, there are those who are hit hard by this new tax bill.
Unfortunately, we’re not all tax preparers. The U.S. tax laws and codes are complex as it is.
While Trump promised to make the new tax bill easy to understand, it’s still best to put your trust in your accountant when filing your taxes.
While you have plenty of time before you file, you should still pay attention to tax news. Here are 8 facts to know before you file 2018 taxes.
1. Personal Exemption is Eliminated
The personal exemption is one of the many benefits that helped middle and lower-class taxpayers, especially families. But there’s a new tax policy that will cause huge turmoil. The personal exemption is now eliminated.
In short, a taxpayer is able to claim an exemption not only their own selves but each individual member in their household.
Fortunately, the tax bill switches out policies. Taxpayers are unable to claim exemptions but the standard deduction doubled. But this may not be enough for taxpayers, especially for large families.
Speaking of deductions…
2. The Standard Deduction Increases
Before the tax bill, the standard deduction for married couples filing together was $13,000. Now, it’s $24,000. The standard deduction for individuals also increases to $12,000, up from the $6,350 it was in previous years.
That’s not all. Some individuals qualify for an even larger tax deduction increase.
Seniors over the age of 65 can increase their deduction by $1,600 and married couples over the age of 65 can increase their deduction by $2,600.
The blind can also increase their deductions by $1,600 (single) or by $1,300 (married).
In addition, there are some limitations. Your deduction may be reduced if:
- If you have dependents
- You’re married and file separately
- You’re a nonresident alien
- You’re the victim of a disaster (unless you were in a federally declared disaster)
This deduction increase helps people save on their taxes.
3. Estate Tax Exemption Increases
When devising the tax bill, Trump didn’t only have corporations in mind. He had the wealthy in general.
The estate tax exemption is now $11.2 million for individuals and $22.4 million for couples.
Trump’s original plan was to eliminate the estate tax altogether. This didn’t go through. But Trump was able to get away with a huge tax exemption.
But seriously, who benefits from this exemption increase? The minority wealthy individuals with $11 million worth of assets will be the one gaining the most luck.
4. There Are a New Income Tax Rate and Other Tax Bracket Changes
Another major change is the income tax bracket change. The current tax brackets (for married couples) are as followed:
- $0 – $19,050 salary – 10% tax bracket
- $19,051 – $77,400 salary – 12% tax bracket
- $77,401 – $165,000 salary – 22% tax bracket
- $165,001 – $315,000 salary – 24% tax bracket
- $315,001 – $400,000 salary – 32% tax bracket
- $400,001 – $600,000 salary – 35% tax bracket
- More than $600,000 salary – 37% tax bracket
If you noticed something with this chart, the very last tax bracket changed. The last tax bracket was originally 39.6%. Now, the tax bracket reduced to 37%.
These lower tax brackets help you get a higher tax refund.
5. Mortgage Loan Interest Deduction Was Reduced
Do you remember the huge push to take out the mortgage loan balance last year? That’s because anyone who took out their mortgage before December 15, 2017, was still eligible for a $1 million tax deduction.
For those who missed the deadline or got a mortgage in 2018, the deduction decreased to $750,000.
As you can tell, this tax deduction decrease will hurt many families.
However, many experts say this deduction makes tax codes fairer.
6. Child Tax Credit Increase
If you have a child under the age of 17, you’re in luck. Your child tax credit went from $1,000 to $2,000 per child. This is beneficial for both low-earning and high-earning parents; the tax bill makes all income housing eligible.
However, this tax credit increase may not be enough for low-income workers.
This is because only families of a higher tax bracket can receive the full tax credit. In addition, immigrant families only qualify for a fraction of the CTC and some may not even qualify for the credit at all.
7. Retirement Plan Increase
This is good news for Gen Xers and millennials who are taking retirement seriously. The retirement contribution cap is up to $18,500. This is a $500 increase from previous years.
The qualifying retirement plans include 401(k), 403(b), 457 plans, and the Thrift Savings Plan.
And these retirement benefits don’t exclude those with an IRA. But now, the annual IRA contribution is capped at $5,500.
Those with an IRA have tax-saving benefits as it is.
But the amount you save varies with your salary and how much you contribute to your account. Let’s say you make the full contribution and you’re in the 25% tax bracket, you can save over $1,000 on taxes.
8. There’s a New Limit on Itemizing State and Local Tax Deductions
You may want to take the standard deduction instead of itemizing. In previous years, there was no cap on the number of deductions you can itemize, specifically with property and income tax. Now, the cap is at $10,000 worth of deductions.
Given, this only applies to states with high income and property tax. These states include California, New York, Illinois, and Texas. It’s predicted more taxpayers in these states will take the standard deduction.
Keep Up With More Tax News
2018 will be a scary year for taxpayers. The new tax bill has many new laws set in place. As long as you keep up with the latest tax news, you’ll be prepared.
Are you looking for someone to help you with your taxes? We’re licensed to do taxes in several states.
