Take a Look at Taxes Now, No Worries Later
We had a great 2017 tax season here at Timothy Roberts & Associates, LLC. With that being said, no one wants to really think about the 2018 tax season just yet. However, it would be beneficial to take some time to know and understand the changes that have taken place and how they may impact you this upcoming tax season.
Unless you are totally out of the earshot of a TV, radio or anything internet, you have heard about the new tax bill that Congress approved last year. On December 22, 2017, President Trump signed the Tax Jobs and Cuts Act of 2017 into law. Although you may know about the new tax law, you may not understand if or how it may impact you.
No worries, we’re here to help!
Taxes have always been confusing for most and can be the cause for a serious headache every spring. We want to help to shed some light on what the tax changes are and how they actually impact you. So, here we go…
All filers for the 2018 tax year will see some obvious changes starting with their standard deductions and personal exemptions. Starting in 2018, the personal exemption of $4,150 per person (including dependents) has been eliminated. However, the standard deduction has dramatically increased to absorb the personal exemption.
- Single taxpayers will see an increase from $6,500 to $12,000
- Married couples filing jointly taxpayers will increase from $12,000 to $24,000
- Head of household filers will see a change from $9,550 to $18,000
Taxpayers who may face challenges from this change are filers with dependents. Since the personal exemption of $4,150 is now gone, families with even just one child lose out since they are limited to a $24,000 deduction rather than $24,450.
$12,000 standard deduction x 1 = $12,000
$4,150 personal exemptions x 3 = $12,450
The option to itemize deductions is still available for all filers but it may be difficult for most to be able to find itemizations that are greater than the new standard deduction amounts.
There have been other significant changes, especially in itemized deductions that taxpayers will need to keep in mind while filing out their Schedule A next year. Some of the notable changes to itemized deductions can be seen in state and local taxes, medical expenses, casualty losses, and charitable contributions. Income and property taxes paid have been limited to a $10,000 deductible for itemization. The threshold for medical expense deduction is now lowered to 7.5% of adjusted gross income (AGI) from its typical 10% of AGI. Casualty and theft losses have been eliminated except for losses attributable to a federally recognized disaster such as a hurricane, earthquake, tornado, etc. Also, charitable contributions can now be as much as 60% of income (from previous 50% cap). These changes have both some positive and negative aspects that will have unknown impacts that filers will face in the next tax year. Seeking out knowledgeable tax advice on these new changes will help to keep you aware and able to strategize in order to create a maximum tax benefit for 2018.
Tax Brackets and Rates
The new tax brackets being introduced this year have lowered the highest tax rate of 39.6% to 37% for the years 2018 through 2025. These new brackets are the reason that many Americans can already see a decrease in the amount of money withheld in their paycheck. The old and new brackets are shown below:
Alternative Minimum Tax (AMT)
Along with the change in the brackets, there is also a new change in the Alternative Minimum Tax exemptions that is aimed at addressing inflation and avoids affecting middle class taxpayers.
Alternative Minimum Tax (AMT)
Married Filing Jointly
Married Filing Separately
The Healthcare Penalty
The healthcare penalty is also disappearing in the next year and you will no longer be penalized for not obtaining health insurance.
This tax applies to children under the age of 19 and college students who are under the age of 24 and they receive unearned income. Unearned income is any income from a source other than salary and wages, such as interest and dividends. This income will be taxed according to the brackets for trusts and estates which are as follows:
Trusts and Estates
If Taxable Income Is Between:
The Tax Due Is:
$0% of taxable income
$255 + 24% of the amount over $2,550
$1,839 + 35% of the amount over $9,150
$3,011.50 + 37% of the amount over $12,500
Tax Credits and Deductions
Child Tax Credit
- It is important to note that the child tax credit has been increased to $2,000 from $1,000 for children under 17. It is refundable up to $1,400.
Earned Income Credit (EITC)
- The maximum EITC amount is $6,431 for taxpayers who file jointly and have three or more qualifying children.
- Adoption of a child with special needs $13,810
- Maximum credit for other adoptions is qualified expenses up to $13,810
Student Loan Interest Deduction
- The deduction remains $2,500
Foreign Earned Income Exclusion
- The foreign earned income exclusion has increased to $103,900 from $102,100
More to come…
There you have it! There are more changes such as those for businesses and retirement plans. We don’t want to give you information overload, so we’ll come back next week and address those changes and more. Until then, check out our tax & accounting page on the website as well as the tax information under the resources tab www.timothyrobertsllc.com . Make sure to follow us on FaceBook and LinkedIn so we can stay connected. Tune in next Wednesday as we continue to update you on the new tax law.