2018 Tax Reform and What it Means to You
No matter how you feel about the recent tax reform the president signed into law in late 2017, it probably will have an impact on both your paycheck and your 2018 annual tax return and beyond. Let’s cut through all the political noise and see what the tax bill might mean to you.
The new tax tables lower the tax rate for every bracket (except the very lowest) and effectively eliminate the marriage penalty. This means the majority of taxpayers will see more money in their paycheck.
Standard deductions (what you deduct from taxable income if you don’t itemize) are increasing substantially. Whether this works in your favor will be determined by the amount you typically itemize and if your deductions still are allowed. Taxpayers in high-tax states could see an increased tax burden due to the elimination of the SALT (state and local taxes) deduction. Other itemized deductions, like home equity loan interest and unreimbursed employee expenses, also have been eliminated.
Taxpayer favorites like the mortgage interest, medical expense, and charitable contribution deductions still are allowed (with some changes). But unless your total for these allowable deductions is higher than your new and improved standard deduction — if you’re a senior with high medical costs or a generous giver, for instance — you might no longer find it beneficial to itemize.
What didn’t get much press was that personal exemptions are eliminated. Historically, this deduction could be significant, especially for large families. But wait! The child tax credit has been doubled to $2,000, and a credit directly decreases your tax burden, not your taxable income. That’s a plus, right? Yes, but the overall impact of these changes still might actually raise your taxes, especially for families with dependents over age 17.
Freelancers, rejoice! Many small business owners will be able to deduct a whopping 20 percent of their qualified business income, but how this income and deduction is defined and calculated is extremely complex so run, don’t walk, to your tax professional’s office on this one.
The only direct mention of the military in the new tax bill relates to PCS moving expenses, which are the only type of moving expense deduction still allowed.
Ultimately, the new tax bill’s impact can vary greatly based on your family size, location, income, and many other circumstances. Check here for a list of tax calculators to estimate your 2018 tax burden.