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A Review of Individual Tax Law Changes

Posted by HomeWork Solutions on 2/21/19 10:00 AM
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tax law changes refresher

As we are in the thick of the 2018 tax filing season most any news outlet has reports of confusion and frustration stemming from the Tax Cuts and Jobs Act. Here is a quick 2018 tax guide that outlines some of the changes.

Rates and Exemptions

The TCJA was designed, in part, to lower tax rates. In most cases it did. It also eliminated some helpful exemptions and nearly doubled the standard deduction. Here are some more specific examples.

  • Individual income tax brackets were adjusted to 10%, 12%, 22%, 24%, 32%, 35% and 37%
  • Elimination of personal and dependent exemptions
  • Approximate doubling of the gift and estate tax exemption, to $11.18 million for 2018

Credits and Deductions

In most cases tax breaks were reduced, likely because of the increase in standard deduction, but there were some that increased.

  • Doubling of the child tax credit to $2,000 and other modifications intended to help more taxpayers benefit from the credit
  • Near doubling of the standard deduction, to $24,000 (married couples filing jointly), $18,000 (heads of households) and $12,000 (singles and married couples filing separately) for 2018
  • Reduction of the adjusted gross income (AGI) threshold for the medical expense deduction to 7.5% for regular and AMT purposes
  • New $10,000 limit on the deduction for state and local taxes
  • Reduction of the mortgage debt limit for the home mortgage interest deduction to $750,000 ($375,000 for separate filers), with certain exceptions
  • Elimination of the deduction for interest on home equity debt
  • Elimination of the personal casualty and theft loss deduction
  • Elimination of miscellaneous itemized deductions subject to the 2% floor
  • Elimination of the moving expense deduction (with an exception for members of the military in certain circumstances)
  • Expansion of tax-free Section 529 plan distributions to include those used to pay qualifying elementary and secondary school expenses, up to $10,000 per student per tax year

In most cases, people who regularly itemized for things like homeowner costs, charitable donations, and SALT (State and Local Taxes) are finding themselves in an unfavorable position.

What Can You Do?

As a payroll company we don’t delve deep into personal tax issues. What we do know about is tax withholding and planning ahead. If you don’t have an updated W4 it would be wise to fill one out and give it to your employer. With the 2018 tax changes hitting people in the wallet this year it might be best to consider filling out that W4 to have taxes over withheld (e.g. switching your status to married but withhold at the higher single rate), or claim fewer allowances. Talk to a personal tax accountant about your individual situation.

Topics: CPA

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