How will the new tax bill affect your bottom line in 2019
Monday, April 15, 2019, is tax day for most of the United States. Fun fact, though, if you live in Maine or Massachusetts, it’s April 17th. That’s because Patriot’s Day is a legal holiday in those states and apparently, you can’t do your taxes and celebrate at the same time.
Logically, the deadline should be moved to Tuesday, April 16th, but to complicate things further, that’s Emancipation Day in Washington, D.C., so the federal government won’t be there to accept them. Voila! Two extra days.
The Tax Cuts and Jobs Act (TCJA)
It seems that each year, there are more changes to the tax code and keeping on top of them can be quite the challenge. If you remember, President Trump signed the Tax Cuts and Jobs Act into law in December 2017. For the most part, the bill didn’t affect individual income taxes until the 2018 tax year, which brings us to today.
The good news about the new plan is that, among other things, it was designed to simplify the tax system. How it will affect your individual return depends on your income, the deductions you take and your filing status. Here’s what you need to know:
Originally, the proposed new tax plan called for a reduction in the number of tax brackets. The final number of brackets remained at seven, but the rates were changed. The new tax brackets are 10%, 12%, 22%, 24%, 32%, 35%, and 37%. They’re important because they affect the amount of income you receive during the tax year and help calculate the amount of your annual tax bill.
The standard tax deduction for all filers was nearly doubled under the new tax plan, but they’ve also eliminated the personal exemption. For single or married taxpayers who are filing separately, the 2018 standard deduction is now $12,000. If you’re filing a joint return, it’s $24,000 and heads of household qualify for an $18,000 deduction.
Child tax credits
Under the new plan, the child tax credit (CTC) was raised from $1,000 to $2,000 per child under the age of 17, and the qualifying taxpayer income limit for the tax credit was raised to $200,000 (or $400,000 for joint filers). It’s also introduced a new $500 deduction for non-child dependents.
Another beneficial change is that if the CTC reduces your tax liability to zero, you’re now eligible to receive a refund for the credit up to $1,400. The adoption credit remains the same and is worth up to $13,750 per child.
For the tax year 2018 (and retroactive to 2017), you can deduct qualifying medical expenses that exceed 7.5% of your adjusted gross income (AGI). But, beginning January 1, 2019, you may only deduct the amount of the total unreimbursed allowable medical care expenses that exceed 10% of your AGI. Also, beginning in 2019, individuals who choose to go without healthcare coverage will not be subject to any tax penalties.
Mortgage interest deductions
Homeowners can still deduct their mortgage interest payments, but for 2018 and beyond, the new limit was reduced to $750,000 from $1 million. If you’re married and filing separately, the deductible mortgage interest limit is $375,000. Also, the interest deduction on home-equity loans has been eliminated.
In previous tax years, taxpayers were able to deduct state and local income and property and general sales tax payments on their federal tax returns. As a result of the new tax law, your total state and local tax (SALT) deductions are now capped at $10,000.
Other deductions that are going away
Aside from the changes we mentioned above, here are some other deductions will be no longer apply to your 2018 tax filing:
- Casualty and theft losses (except those attributable to a federally declared disaster)
- Other miscellaneous deductions previously subject to the 2% AGI cap
- Tax preparation expenses
- Unreimbursed employee expenses
- Moving expenses
- Alimony payments
- Certain school donations
When President Trump signed the tax reform bill into law, it made major revisions to the tax code. In fact, the bill represents the most significant tax changes in more than 30 years. For the comprehensive list of changes, click here.