March 27, 2020

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2018 Midpoint Checkup--Planning for Tax Cuts and Jobs Act Impact on This Years Taxes

 

It is halfway through the 2018 tax year, and taxpayers are starting to wonder what the Tax Cuts and Jobs Act passed late last year will mean to them. Other than a kerfuffle over state and local property taxes in the last two weeks of December, little has been said or done since then. No worries, that's why we are here.

 

Increased benefits to individuals and couples. One of the biggest impacts taxpayers can expect involves an increase in the amount of the standard deduction. The previous amount — $6,350 for single filers — is nearly doubled under the reform, now falling at $12,000. Couples who file jointly will find that their standard deduction has risen from $12,700 to a substantially heftier $24,000. The alternative minimum tax, or AMT, will prove less of an issue for both married and single taxpayers as well. Income exempted for couples filing jointly is increased to $109,400 from $84,500; for single filers, the amount increases to $70,300 from $54,300. In addition, the Act officially eliminates any penalty for lack of health insurance after the December 31, 2018, and filers looking to deduct medical expenses will be able to do so for 2018 as long as those expenses account for more than 7.5% of their adjusted gross income [AGI] (down from 10%).

 

Income thresholds and their corresponding tax brackets are changed under the Act. The new brackets are as follows: 10%, 12%, 22%, 24%, 32%, 35% and 37%. This adjustment effectively lowers tax rates for filers in all but two existing brackets (10% and 35%).

 

Increased benefits for dependents. Another considerable component of the Tax Cuts and Jobs Act is the increased Child Tax Credit. Whereas filers could previously claim up to $1,000 per eligible child, the Act now allows double that amount (up to $2,000). The new law also affords a non-refundable $500 credit for any non-child dependents. Possibly most significant of all is the fact that married couples can now make up to $400,000 before these benefits no longer apply — previously, the ability to claim these credits was limited to couples earning $110,000 or less.

 

Decreased benefits for individuals and couples. Taxpayers are now limited to deducting up to a maximum of $10,000 in local and state taxes. And for those taking out a new mortgage, deductions are limited to the first $750,000 of the loan (this won't impact filers who currently hold a mortgage).

 

Dependent and personal exemptions — set at $4,050 for 2017 — are eliminated by the Tax Cuts and Jobs Act. For many families, this may be offset by the aforementioned increase in the Child Tax Credit and added credits for non-child dependents.


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