This is a guest post written by Paige from the Fairy Tax Mother blog.
There are numerous changes to the 2018 tax year thanks to the Tax Cuts and Jobs Act. Commonly know as TCJA (pronounced tick-ja by nerdy tax accountants). There are changes to both individual and corporate tax law that are being implemented in tax year 2018.
Here are the top 6 tax law changes for individuals:
1. Tax Rates: Tax rates have been lowered and the tax brackets have also widened. There are still seven tax brackets but the income threshold for the rates have changed. Meaning more of your income has the potential to be taxed at a lower rate.
2. Personal and dependent exemption: These exemptions have been eliminated completely for tax year 2018. In the past, taxpayers would get an exemption for themselves, their spouse, and any dependents. For tax year 2017, the exemption amount was $4,050.
3. Standard deduction: The standard deduction has nearly doubled. The standard deductions for married filing jointly couples has increase from $12,700 to $24,000. This is great news, but it means less people will be able to itemize their deductions. Since the standard deduction is so high, it will be harder to have more itemized deductions than the standard deduction.
4. Child Tax Credit– The child tax credit has doubled and will be $2,000 per qualifying child in 2018. The phase-out limit has also increased from $110,000 to $400,000. Meaning if your income is under $400,000 in 2018, your credit will not be limited. Also, the credit is now partially refundable!
5. State & Local Taxes– TCJA has limited the amount of state and local income, property and sales tax you can deduct to $10,000. These deductions are part of your itemized deductions on Schedule A. There has not been a limit to these deductions in the past. So this will be a game changer for many taxpayers who itemize their deductions.
6. AMT Exemption– The Alternative Minimum Tax exemption has increased from $84,500 to $109,400 (MFJ). This exemption reduces the income subject to AMT. So this will reduce the amount of taxpayers subject to AMT in 2018.
As you can see there are many changes- not all bad – not all great. One thing for sure is this tax bill will affect everyone differently. And remember, always file your return on-time and make every effort to pay your entire tax liability when filing. There are several options available if you can't afford to pay your taxes on time.
What tax law change do you think will have the biggest impact on your tax return in 2018?
* This post is for informational purposes only. This is not intended to be personalized tax, legal or accounting advice. You should always receive tax advice from someone who is familiar with your unique situation*
Author: Paige N. Smith is a CPA with a Master in Taxation degree. She has over nine years of experience in public accounting- working on corporate and individual income tax planning and compliance. Paige is the creator of the Fairy Tax Mother blog – a playful blend of tax + accounting. Her blog focuses on helping people understand and gain confidence on tax and accounting. Check out her blog for more awesome posts and sign up for her free tax term cheat sheet at Fairy Tax Mother