This week marks the start of the first filing season under the new tax law put forth by the Tax Cuts and Jobs Act. And there’s plenty of confusion to go around. Nearly 1 in 2 participants in a NerdWallet survey don’t understand how the changes affect their tax bracket. Here are some highlights of the new tax law that you need to know:
- The standard deduction has increased to $12,000 for single filers and $24,000 for taxpayers married filing jointly in 2018.
- Personal and dependent exemptions, which you were able to claim for yourself, your spouse and each of your dependents, are no longer allowed.
- There are new limitations on itemized deductions, including a $10,000 cap on the state and local tax deduction.
- Individual income tax rates overall have fallen, with the top rate at 37 percent, compared to the highest rate of 39.6 percent prior to passage of the new law.
Tip: With lower tax rates and higher standard deductions, the IRS advises you review your withholding, even if you’re retired. New tax withholding tables can be found here. If you’re withholding too little, you will owe money to the IRS. This month the IRS granted a reprieve for taxpayers who paid at least 85 percent of their total tax liability for 2018.
- The child tax credit has increased to $2,000 for each child under age 17, which is double the amount under the old law.
- The deduction for home mortgage interest payments is limited to new mortgage debt of up to $750,000 ($375,000 if married filing separately). This is reduced from the previous limits of $1,000,000 and $500,000, respectively.
- Numerous miscellaneous itemized deductions, which were previously deductible to the extent that the aggregate of those deductions exceeded 2% of adjusted gross income no longer apply. For instance, deductions for unreimbursed employee expenses, unreimbursed vehicle expenses, tax preparation fees, investment expenses and more are all out.
Tip: For a list of itemized deductions that you may miss on your 2018 tax return, click here.
Kari Springer is an attorney at Gawthrop Greenwood, PC, where her practice includes Taxation, Trust and Estate Planning as well as Business Law. Kari can be reached at kspringer@gawthrop.com or 610-696-8225.
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