Tax Reform: How do the Changes Impact Me?
The largest overhaul in the federal tax code in the last 30 years take full effect as returns are processed in 2019. There are many issues to consider. How will they impact taxpayers as the filing deadline approaches (usually April 15 every year)?
It’s important: Often, a tax refund may be the biggest check you get all year.
Here’s a list and descriptions of some of the most important changes:
The standard deduction has increased
Starting with the 2018 tax year, the standard deduction is $24,000 (previously $12,700) and $12,000 for individuals (it was $6,350). Head of household filers get an increased deduction of $18,000 from the previous $9,550. These increases could save the effort of itemizing on tax returns.
Elimination of dependent exemptions vs. increases in the child tax credit
Claiming dependents as an exemption toward a deduction on taxes has been eliminated. However, taking a child tax credit has been enhanced in many ways. For one, the child tax credit has been doubled to $2,000. Here’s the distinction between deductions and tax credits: Deductions (or the dependency exemptions) are subtracted from taxable income; tax credits are a direct reduction from the taxes you owe.
Fewer deductions for those who have itemized
One big example of the fewer, or restricted, itemizations include the limit on state and local taxes (property taxes, income taxes and sales taxes) to $10,000. Previously, these taxes were fully deductible. Itemized deductions that have been totally eliminated include unreimbursed employee expenses.
The loss of some home-related interest deductions
The tax benefits of loans based on the equity of your home are greatly reduced, if not completely eliminated. The interest on a Home Equity Line of Credit (HELOC) or home equity loan – and these are popular when refinancing a home loan – are largely not allowed to be deducted. If those loans are connected to home improvement work that was done, the deduction could still be available.
Tax information on “post cards”
Don’t be surprised when you see that even your income tax return – Form 1040 – is getting a makeover. It’s just about the size of a postcard.
Many of these new provisions in the tax code are scheduled to remain in place until 2025. You can discuss the impact of the tax code with a certified advisor, accountant or tax consultant.
You can also find help by accessing popular tax calculators.
This information is intended to provide general information and should not be considered legal or tax advice. Please consult a tax professional for more information.