As we look to close the book on 2018 with only a couple weeks left, it’s time to start thinking about another season, tax season. Although not as magical as the holidays, unless you are expecting a windfall, tax season is something none of us can avoid. Yet, for many, the anticipation is just as great because it might be the largest check you’ll receive all year. If you are prepared, tax time doesn’t need to be a grueling task. Updates regarding tax laws change every year so the first step is knowing what is impacted and how it will affect you and your situation.
The biggest change taxpayers will see this year is they will not be able to claim personal exemptions under the tax reform bill that passed into law t the end of 2017. How this will tax plan will negatively or positively impact your family will greatly depend on your situation.
This is the biggest change that will most certainly hit families most. In short, a personal exemption is a set amount you could deduct for every taxpayer or dependent on your prior tax return. The 2018 personal exemption was supposed to increase to $4,150 before it was repealed by Tax Cuts and Jobs Act (TCJA) in late 2017.
That equates to a family of four being able to deduct $16,200 from their taxable income, which lowers their tax burden. This was an essential component for lower and middle-income families since the value would decrease once a family reached a higher joint income. To help negate the loss, the TCJA increased the standard deduction amount, doubled the Child Tax Credit, and created a new $500 credit for other dependents (Family Tax Credit). You will still be able taxes that you filed by April 17, 2018 (or October 2018 if you receive an exemption). Seeking expert support with your taxes is always a good idea if you are unsure.
SALT deduction capped
The Tax Cuts and Jobs Act now limits your total state and local taxes, including property and income taxes or property and sales tax (SALT) to $10,000. Prior to the enactment, there was no limit to the amount you could deduct, making this yet another change to watch when filing your taxes.
Decreased mortgage interest tax deduction
Starting in 2018, the limit on home acquist debt has gone down to $750,000 ($375,000 for married couples filing separately), and the home equity interest deduction has been adjusted. Prior to the new tax plan, homeowners who were married and filing their taxes jointly could deduct the interest on their mortgage through itemized deductions up to $1 million of home acquisition debt.
Besides the changes in mortgage deductions and SALT, the Tax Cuts and Jobs Act also modified other itemized deductions including:
- Theft and casualty losses: Prior to the new tax laws you were able to deduct personal casualty or theft losses that were not reimbursed by insurance so long as it did not exceed $100 per loss and it did not exceed 10% of your Adjusted Gross Income. Under the new tax law, you are only able to deduct casualty and theft losses ( not exceeding 10% of your Adjusted Gross Income) if they’re attributed to a presidentially declared disaster.
- Unreimbursed medical expenses: Prior to the new tax law you could only deduct eligible and unreimbursed medical expenses that exceed 10% of your AGI. That amount now decreases to 7.5% for the 2018 year.
- Aggregate itemized deduction limits: rather than restricting how much high-income taxpayers can deduct through itemized deductions, tax reform eliminated the overall limit.
The new laws regarding taxes will differ for every person and situation and can become complicated. Sometimes simply knowing a tax professional is filling your tax return takes a lot of stress off your plate. Professional tax preparers can answer your questions, put you at ease, resolve issues, reduce your chances of being audited, and save you time and money. At Tax Relief, Inc. we pride ourselves on being your trusted and expert source on taxes. We interact daily with the IRS allowing us to meet your specific goals and needs. Contact us today to set up a free, no-obligation consultation or call us at 630-655-1040.