fbpx

How the new tax reform is going to affect you

Many of you have asked how the new tax reform is going to affect you. Our next few posts will address the main points you need to be aware of. If you are a client, full details will be posted to your client portal soon this week.

For individuals:

The pros:

  1. Your standard deduction has doubled. What does that mean? Your total income is reduced by either your standard deduction or itemized deductions.

For 2017, your standard deduction was $6,350 if you filed as single or if you were married filing separately, $12,700 if you were married filing jointly, and $9,350 if you filed as head of household.

For 2018, the standard deduction is $12,000 for single or married filing separately, $24,000 for married filing jointly, and $18,000 for head of household.

  1. If you have children, your child tax credit, which was previously $1,000 per child, has now been increased to $2,000 per child. (This is still subject to income limitations. As your income increases, this credit becomes limited. However, those income limits have also increased.)
  2. Alimony received is no longer considered taxable income to the receiving spouse.
  3. The number of tax brackets has been reduced, while the income ranges within those brackets have been expanded.

If you are someone who did not itemize previously, you will probably see a little more of refund in your 2018 tax filing.

The cons:

  1. Alimony paid is no longer deductible to the paying spouse.
  2. Moving expenses are no longer deductible, except for those related to military relocation.
  3. There is no longer a personal exemption. For 2017, you were allowed $4,050 per person claimed on your return as a personal exemption, which further reduced your taxable income. The logic is that now this amount is included in the standard deduction. Larger household families could be especially hit hard by this change.
  4. Itemized deductions have been reduced.

In 2017, itemized deductions such as medical expenses (limited to 10% of income), property taxes, state income or sales taxes, mortgage interest, charitable donations, casualty losses, and miscellaneous expenses such as non-reimbursed work-related expenses, tax preparation fees, safety deposit box rental, legal fees, investment fees and gambling losses could be deducted if the total amount was more than your standard deduction.

In 2018, you can only itemize the following: medical expenses (limited to 7.5% of income), state income or sales taxes and property taxes (limited to a total of $10,000), home mortgage interest (home equity line interest is no longer deductible) and charitable donations.

Casualty losses are no longer deductible unless your casualty is in an area that is declared a disaster zone by the president.

Miscellaneous expenses are NO LONGER deductible. This is a HUGE blow for those workers who travel for work and are not reimbursed. That means your mileage, travel cost, phone bills, and any other work expenses that are not reimbursed by your employer are no longer deductible. The only way you can deduct them is if you are paid as a 1099 contractor or as a pass-through business.

5. Residential energy credits are no more.



Leave a Reply