A Summary of Tax Reform Changes and Where Taxpayers Can Find More Information.
In this summary of tax reform, we will see that major tax law modifications affect every taxpayer that files a 2018 tax return this year. This article is to assist taxpayers in fully grasping these changes. Therefore, the IRS has made available some resources that are on the IRS.gov website. Here’s a brief summary of key changes:
There Were Lower Tax Rates in 2018
These tax rates are lower for most income brackets. There are seven rates, and they vary from 10 percent to 37 percent. This information can be found in Publication 5307, Tax Reform Basics for Individuals and Families.
The Standard Deduction is Almost Doubled.
Next, for 2018, the basic standard deduction is $12,000 for singles, $18,000 for heads of household and for married couples filing a joint tax return, the deduction is $24,000. For those who have qualifying disabilities or are at least age 65, there are higher amounts. In addition to the other changes, for those who itemized tax deductions in 2017 tax year, more than half of them could qualify for the higher standard deduction on their 2018 tax return. Publication 501,
Dependents, Standard Deduction and Filing Information will help to explain this in more detail.
Did you have various Limited or Discontinued Deductions?
In this summary of tax reform changes, we ask, are you aware that new limits pertain to mortgage interest? In addition, taxpayers no longer qualify to deduct miscellaneous itemized deductions for work-related costs and certain other expenses. Also, the tax law limits the state and local tax deduction to $10,000. For those who are married and filing a separate tax return the limit is $5,000. Instructions for Schedule A, Form 1040 is the best resource to look at in this case.
Will we lose the Child Tax Credit?
More people now qualify for the Child Tax Credit. And, the Child Tax Credit has doubled, so that’s a win win. The age limit is still under the age of 17 for each qualifying child, and the maximum credit is now $2,000. The full credit for the income limit for getting the full credit is now $400,000 for joint filers and for other taxpayers it is $200,000. The best publication to read about this is the Child Tax Credit, Publication 972.
What about the tax credit for other dependents?
Taxpayers may now claim a $500 credit for each dependent who doesn’t qualify for the Child Tax Credit. This includes older children and qualifying relatives, such as a parent. Did you have a college age child? Did they take a job working full time after graduation? It may be make more sense to allow them to claim themselves, since they will be eligible for the $12,000 single standard deduction. A far greater benefit than the $500 credit. Go here to read about Tax Reform on the IRS.gov website.
Do personal and dependency exemptions still apply?
Well, personal and dependency exemptions are on hold. Therefore, taxpayers filing a tax return are no longer able to claim an exemption for their dependents, a spouce or themselves. Publication 17, Your Federal Income Tax will explain this in more detail.
Do Tax Reform changes still have you wondering what’s best for your tax filing status?
Keep in mind that taxes are due in a couple of weeks. This is why we made a last minute effort to provide this summary of tax reform. Many people are calling our office because they still cannot seem to grasp all the changes with tax reform. That’s okay and we encourage you to call Alex Franch, BS EA at 781.849.7200 or email the office at firstname.lastname@example.org to schedule your appointment. Alex is an enrolled agent with the IRS> You may also go online and schedule your appointment now. The earlier you schedule your appoint, the earlier you get your refund. And, when you owe, it is better to know in advance so you can write and mail that check before the April 15th deadline (or 17th for those taxpayers who live in Maine or Massachusetts).