Concerned about how tax reform changes will impact your tax return? You’re not alone. The biggest tax reform in 30 years is a promising simplification, but it may not be that simple for many Americans. Jackson Hewitt® wants you to know the top things about tax reform that may impact you.
No personal or dependent exemptions – Don’t panic; this doesn’t mean your taxes will automatically go up. It just means you won’t be able to claim exemptions for yourself or your dependents on your 2018 return, starting this year. Come in and ask a Tax Pro about built-in new tax benefits such as the increased child tax credit, new other dependents credit, increased standard deduction and a reduction in tax rates.
Lower tax rates
Double the standard deduction – In all cases, the typical standard deduction has nearly doubled. These are the new standard deduction amounts:
- Single: $12,000 (up from $6,350)
- Married Filing Jointly/Surviving Spouse: $24,000 (up from $12,700)
- Head of Household: $18,000 (up from $9,350)
- Married Filing Separately: $12,000 (up from $6,350)
- Age 65 or older, blind, or disabled: Add $1,300 to your standard deduction ($1,600 for unmarried taxpayers)
Multiple changes to child tax credits – The Child Tax Credit and the Additional Child Tax Credit are larger. The total Child Tax Credit for each qualifying child under age 17 is now $2,000 per child; in addition, up to $1,400 of the credit for each child is refundable. The credit is available on incomes up to $400,000 if filing a joint return, and $200,000 for all others. There is also a new $500 nonrefundable credit for other dependents and children who do not qualify for the Child Tax Credits. The changes to the credit can mean potentially less taxes and a bigger refund for middle-income taxpayers.
Even small businesses benefit – Tax reform allows a deduction from taxable income of 20% of business income to lower taxes for small businesses. Businesses also benefit from increased depreciation deductions and faster asset expensing in addition to many other business changes.
No more health insurance mandate – Starting in 2019, the penalty for not having health insurance will be $0. For the 2017 and 2018 tax years, the penalty remains around $695 per person or 2.5% of household income.
Itemized deductions – They’re still available, but there are changes, and there are new limits or thresholds:
- Mortgage interest paid on an original loan for up to $750,000. Interest paid on a second mortgage or equity line may still be deductible as long as it is for home improvements and, combined with the remaining original principal, does not exceed the original loan amount.
- The medical expenses floor, or amount subtracted from the total expenses before deduction, has been reduced to 7.5% of Adjusted Gross Income (AGI) for all taxpayers.
- Charitable contributions – the new limit is 60% of AGI. Any charitable contributions over this amount must be carried forward and added to the next year.
- Personal and dependent exemptions have been suspended. However, there have been adjustments to the Child Tax Credits to help offset the change.
- Regular Casualty and Theft losses are no longer allowed. However, taxpayers in Federally Declared Disaster Areas may still claim their losses.
What about the Alternative Minimum Tax rate (AMT)? The AMT is still here, but with a higher exemption of $109,400 if you are Married Filing Jointly (up from $84,500), $70,300 for Head of Household (up from $54,300), and $54,700 if you are Married Filing Separately (up from $42,250). The exemption phase-out threshold is increased to $1 million for MFJ taxpayers and $500,000 for all others. In summary AMT is still here and can sneak up and bite you but only at higher levels than prior years.
How are pass-through provisions affected? Basically, deduct 20% of business income, and the remainder is taxed at new rates. There is some other great stuff for “immediate expensing” of business assets, and small businesses are big winners!
To keep the cost of the bill within Senate budget rules, all of the changes affecting individuals will expire after 2025. At that time, if no future Congress acts to extend these measures, the individual tax provisions would sunset, and the tax law would revert to its current state.
Each taxpayer’s situation is different. If you have any questions about your withholding, tax reform changes, or life changes that could impact your taxes, contact a Tax Pro.