With the end of 2018 upon us, we know it’s time for two things: ambitious New Year’s resolutions and taxes. Though it may sound like the less glamourous of the two, here we are going to focus on taxes.Â
Whether or not you have prepared your own tax return in previous years, there are many changes to the tax code to understand as a result of the 2018 Tax Reform Bill. Let’s take a look at some of the most notable changes for individual returns (Form 1040):
New Tax Rates
The tax brackets and their respective tax rates have changed. Check them out on the IRS website here: https://www.irs.com/articles/2018-federal-tax-rates-personal-exemptions-and-standard-deductions
For the most part, these tax brackets are lower than what they would have been before tax reform.
Larger Standard Deduction
The standard deduction has just about doubled for all filing statuses. This change will simplify the preparation of returns for a significant number of filers because many filers who used to itemize will now use the standard deduction.
No More Personal Exemption
That’s right – the personal exemption is eliminated due to the 2018 tax reform.
Child Tax Credit Doubled
The Child Tax Credit has doubled in 2018 from $1,000 to $2,000, and the refundable amount is now $1,400. The phaseout threshold for the credit has also significantly increased to $400,000 for Married Filing Jointly and $200,000 for individuals.
Reduced Medical Expense Deduction Threshold
Taxpayers may now deduct medical expenses over a threshold of 7.5% of adjusted gross income (AGI), down from a previous threshold of 10%. This means that many taxpayers will be able to deduct a greater portion of their medical expenses, and some may now be able to deduct them who before would not have been able to deduct any at all.
Increased Limit of Charitable Contributions Deduction
In 2018, taxpayers may deduct charitable contributions of up to 60% of their AGI, up from a previous limit of 50%.
Decreased Limit for Mortgage Interest Deduction
The mortgage interest deduction can now only be taken for mortgage debt of up to $750,000, as opposed to the prior amount of $1 million.
Decreased State and Local Tax Deduction
The new tax bill only allows taxpayers to deduct up to $10,000 of state and local taxes, including income, sales, and property taxes (This will likely be an unpopular change for residents of states with high property taxes, including New Jersey, New Hampshire, and Texas).
These are just some of the more significant tax updates for 2018—this is not meant to be an all-inclusive list. There may be others that apply to you. Feel free to check out the IRS website for a comprehensive list of all tax reform changes: https://www.irs.gov/tax-reform
As always, remember to contact a tax professional or the IRS tax help line if you have any questions. Happy filing!
