4 New 2018 Tax Changes You Need to Know Before You File
- Changes to tax deductions in 2018 could save or cost you money.
- The standard deductions are much higher this year.
- However, itemized deductions are more limited.
The new year marks the beginning of tax season—and although the official deadline to file isn’t until April 15th, it’s never too early to prepare your taxes. That’s especially true considering that the Tax Cuts and Jobs Act of 2017 goes into effect this year. As one of the biggest tax overhauls in the past 30 years, these new tax regulations are sure to impact the way that everyday Americans like you file taxes and claim deductions.
Just like any other year, how much you pay in taxes depends on your income, the deductions you take, the tax credits you are eligible for, and more. But because of tax reform, many of these factors have changed since last year.
Here are four major 2018 tax changes you need to know about before you start filling out your tax forms this year:
1. Lower tax rates in most brackets
A tax bracket is a set of income ranges that the government taxes at different rates. Since last year, the government has adjusted these income ranges for inflation and changed tax rates by as much as 4% in each bracket. It’s important to review your income and check which bracket you fall into this year, as it may have changed from last year.
As a result, you may expect to pay less in taxes this year.
Here’s a breakdown of tax bracket income ranges and rates for single and married filers:
|Single Filer Income||Joint Filer Income||Tax Rate|
2. Increase in the standard deduction
The standard deduction is the amount of your income that is not subject to income tax and can be used reduce your tax bill. One of the biggest 2018 tax changes is a significant increase in the standard deduction for all filers.
The standard deduction for single filers is $12,000
The standard deduction for joint filers is $24,000
The standard deduction for the head of the household is $18,000
Since the standard deduction has nearly doubled since last year, you won’t have to pay as much in taxes on your income as you did last year. And since most taxpayers’ itemized deductions will likely be lower than the standard deduction, chances are that many taxpayers may opt for the standard deduction rather than itemizing their deductions in 2018. However, if you are planning to itemize your deductions, be aware of how itemized tax deductions have changed.
3. Changes to itemized deductions
Unlike standard deductions, itemized deductions allow you to list out your tax-deductible expenses from last year and deduct that number from your taxable income. If you have had significant work-related or medical-related expenses, contributed a large sum of money to charity, or qualify for other itemized deductions, you may want to consider itemizing instead of taking the standard deductions.
Since last year, the itemized deductions that taxpayers are eligible for have changed or been suspended. Some of the most notable changes to itemized deductions include:
The new medical expense itemized deduction threshold is 7.5% of Adjusted Gross Income
Homeowners who have bought a first or second home in the past year or taken out a home improvement loan can only deduct interest on up to $750,000 of their mortgage debt
Most investment expenses deductions have been suspended
Alimony deductions have been suspended
Personal casualty and theft losses have been suspended
Charitable contribution deduction limitation has been increased to 50%
State and Local Tax deductions are now capped at $10,000
If you are planning to itemize your deductions this year, make sure you do thorough research and talk to your tax advisor before sending in your deductions.
4. No more personal exemptions
A major drawback of the Tax Cuts and Jobs Act is the elimination of personal exemptions. A personal exemption is an amount of money that you can deduct for yourself and each of your dependents. Last year, taxpayers could claim up to $4,050 in personal exemptions, plus $4,050 for each dependent. In the 2018 tax year, you can no longer claim these exemptions.
To offset the elimination of personal exemptions, you could claim certain tax credits if you are eligible—like the Child Tax Credit, which has increased from $1,000 to $2,000 per child.
How will 2018 tax changes affect you?
It’s hard to tell whether the Tax Cuts and Jobs Act will work in your favor until you sit down to file your taxes. However, now that you know about some of the major changes that will result from the Tax Cuts and Jobs Act, it may be easier for you to prepare. Just make sure to consult a tax advisor before you file your taxes if you have any questions about the new tax changes or need help figuring out your particular tax situation.
Filing your taxes is just one piece of the money management puzzle. In search of more tips on how to manage your money, get out of debt, and improve your personal and business finances? Come back to our blog each week for more information.