2018 TAX REFORM
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
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.
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.
The personal exemption has been eliminated with the tax reform bill.
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.
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
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.