By Fiona Leung on Oct 30, 2018
As we draw closer to the last quarter of 2018, Americans are starting to think more about the changes to the U.S. tax code. Though the tax code has been tweaked in recent years, it’s been 27 years since the last major revision that took place under President Reagan. Whether you plan on doing your own taxes, or will be consulting with a CPA or other tax professional, take some time to familiarize yourself with the multiple changes that will take effect in 2019 for the 2018 tax year:
- In 2017, tax rates varied from 10% for single filers making less than $13,350 to $39.60% for those making in excess of $444,551. For 2018, tax brackets were changed to 10% for single filers making a maximum of $9,525 a year to a 37% bracket for those making over $500,000 a year, with an additional $150,689.50 tacked on. This change makes it likely that your tax bracket has changed, with many now in a lower bracket, while some have been pushed up to the next higher bracket.
- One of the most significant changes facing the majority of filers is the increase of the standard deduction, increasing to $12,000 for individuals, $18,000 for head of household, and $24,000 for those filing jointly.
- Another significant change is the elimination of the personal exemption, which will impact those with multiple children the most.
- The child tax credit has been increased to $2,000 for each qualifying child, and will likely help to offset the loss of the personal exemption for families with multiple children.
- Another change that may affect many taxpayers is the suspension of personal casualty and theft losses as a deductible item unless the loss has occurred in a federally-declared disaster area.
- The new tax bill also eliminates numerous miscellaneous itemized deductions including employee business expenses, tax preparation fees, investment expenses, job search expenses, moving expenses, and employment-related educational expenses.
- Deduction of state and local taxes paid for the year is now limited to $10,000 per calendar year.
- 529 savings plans can be used for private schooling for grades K-12 as well as for college, with taxpayers able to withdraw up to $10,000 per year, per student for any directly related education costs.
- Alimony expense will no longer be deductible, nor will it be claimed as income for anyone divorced on or after January 1, 2019.
- Medical expense deductions can now be claimed on any out of pocket expenses that exceed 7.5 percent of adjusted gross income, a lower threshold than the previous 10 percent in 2017.
- The mortgage interest cap has been lowered to $750,000 from $1 million, though the old cap still applies to those that took out a mortgage prior to December 15, 2017. Interest can also be deducted on a home equity loan provided that the loan was used to buy, build, or improve your home.
- The charitable donation deduction has been raised to 60%, allowing you to deduct up to 60% of income in qualified charitable donations, an increase from 50%.
- Various deductions such as the student loan interest deduction, adoption assistance, and teacher deduction remain in place.
It’s clear that the 2018 tax year may prove challenging to many filers. The best advice is to get yourself up to speed on all of the changes and enlist the help of a tax professional to ensure that you’re filing accurately.
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