Your tax world has officially changed. Here are some of the new things you’ll see – and old things you won’t see – on your 2018 tax return.
First, if your itemized deductions don’t add up to exceed the new, doubled standard deduction, your tax life will get simpler. For single filers, the new standard deduction threshold is $12,000. For married filers, it’s now $24,000.
Notably, investment fees and tax prep fees are no longer deductible. Also, the deductible portion of your combined property taxes and state income taxes is now capped at $10,000. Due to these changes, like 90% of all taxpayers, you’ll probably opt to use the new standard deduction. If so, you’ll have far fewer records to gather next year.
Second, personal exemptions no longer exist on your federal tax return. This is an especially huge loss of deductions for larger families.
However, with simplification as a big goal, what the government “taketh” away in deductions and exemptions, they “giveth” back with the doubling of the standard deduction.
Whether this tradeoff makes you a winner or a loser is an open question. On a national scale, though, it results in what tax geeks call a “broadening” or “widening” of the tax base. The bottom line is more income is now subject to federal tax.
Of course, this was officially named the Tax Cut and Jobs Act for a reason. Some major changes were included to combat this broadening of the tax base.
To start, the new law generally lowers tax rates by about 3% across the board. For example, the old 15% bracket is now 12%. The old 25% bracket is now 22%. The old 28% bracket is now 24%. You get the drift.
For lower income couples with kids, these lower tax rates may not fully offset that broadening of your personal tax base. However, the doubling of your child tax credit to $2,000 may more than make up for it. A tax cut is very likely in the cards for you.
For upper income filers, with or without kids, the lower tax rates are also more than likely to make up for the widening of your tax base. It should be said the Alternative Minimum Tax or AMT is essentially a thing of the past.
No summary of the new tax law would be complete without mentioning the major break given to many small business owners. What resulted was a highly complex business deduction of up to 20% of your business income.
Now, when I say it’s complex, I’m not exaggerating. It’s fair to say that, where the small business tax changes massively whiffed on the goal of simplicity, it doubled down on the goal of cutting taxes for many business owners!
Once again, please join us at the next Money Series on Wed., Feb 7 at 6:30pm in the McGuire Rm at the Traverse Area District Library where attorney Diane Kuhn Huff will discuss estate planning. The Money Series’ non-profit mission is to provide open-access to financial education, for all. Register at FrontStreetFoundation.org or call (231) 714-6459.