2018 TAX REFORM
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Overview of the Tax Cuts and Jobs Act Major tax reform
that affects both individuals and businesses was enacted in December 2017. It’s
commonly referred to as the Tax Cuts and Jobs Act (TCJA), or tax reform. The IRS estimates that they we will
need to create or revise more than 400 taxpayer forms, instructions, and
publications for the filing season starting in 2019. It’s more than double the
number of forms they would create or revise in a typical year. |
Some
of the most basic changes are: Changes to Standard Deduction Starting
in 2018, the standard deduction for each filing status is:
The amounts are higher if you or your spouse are blind or over age 65. Most taxpayers have the choice of either taking a standard deduction or itemizing. If you qualify for the standard deduction and your standard deduction is more than your total itemized deductions, you should claim the standard deduction in most cases and don’t need to file a Schedule A, Itemized Deductions, with your tax return. What does this mean? More than 9 out of 10 taxpayers use tax software or a paid preparer to file their taxes. You still need to compare your itemized deductions to see which one is best for you. Standard Deductions Those who are married and filing jointly will now have an increased
standard deduction of $24,000, compared to the $13,000 it would have been under
the previous law. Single taxpayers and those who are married and file separately now have
a $12,000 standard deduction, compared to the $6,500 it previously would have
been. For heads of households, the deduction will be $18,000 compared to $9,550. Personal Exemptions The personal exemption has been eliminated with the tax
reform bill. Estate Tax The estate exemption doubles to $11.2 million per individual and $22.4 million per couple in 2018. Top Income Tax Rate A new 37 percent top rate will affect
individuals with incomes of $500,000 and higher. The top rate kicks in for
married taxpayers who file jointly at $600,000 and up. Child Tax Credit The child tax credit has been raised to $2,000 per qualifying child (those who are under 17). A $500 credit is available for dependents who do not get the $2,000 credit. Mortgage Interest The deduction for interest is capped at $750,000 for mortgage loan balances taken out after Dec. 15 of last year. The limit is still $1 million for mortgages that were established prior to Dec. 15, 2017. State and Local Taxes The itemized deduction is limited to $10,000 for both income and property taxes paid during the year. Contribution Limits for
Retirement Savings Employees who participate in certain retirement plans ‒ 401(k), 403(b), most 457 plans, and the Thrift Savings Plan – can now contribute as much as $18,500 this year. Savings in IRAs Savers who contribute to individual retirement accounts will have higher
income ranges following cost-of-living adjustments. Note that the deduction
phases out for individuals and their spouses who are covered by workplace
retirement plans. For single taxpayers, the limit will be $63,000 to $73,000. For married couples, the phase-out
range will vary depending on whether the IRA contributor is covered by a
workplace retirement plan or not. When the spouse who is investing has access
to an employer plan, the range is $101,000-$121,000. For individuals who don't
have a retirement plan but are married to someone who does, the phase-out has
been raised to $189,000- $199,000. The phase-out was not adjusted for married individuals who file a separate return and who are covered by a workplace retirement plan. That range is $0 to $10,000. Contributions to Roth IRAs For individuals who are
single or the heads of their households, the income phase-out has been raised
to $120,000 to $135,000. For married couples who file jointly, the range climbs
to $189,000 to $199,000. The phase-out was not adjusted for married individuals who file a separate return. That is $0 to $10,000.
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