In December of 2017 the government passed new legislation regarding income tax return filings. These changes will directly affect your withholdings in 2018 and proper tax planning will help ensure you do not owe Uncle Sam thousands when you file your 2018 return. To better understand these changes we will try to break down all the changes you can expect in 2018 with your personal or business return and how that might have an impact on your filings.
If you are feeling overwhelmed by these new laws and changes and would like some help setting up your monthly tax W4 we offer tax planning software that incorporates all these new laws. We can input your information and help you understand what your tax liability will be in 2018 so that you do not end up owing thousands to the government.
Standard Deduction Amounts
The standard deduction has increased for both single income tax filings as well as married filing jointly.
Married Filing Jointly
Head of Houshold
The Tax Cuts and Jobs Act (TCJA) has changed the income levels for each tax brackets.
Alternative Minimum Tax
The Alternative Minimum Tax has been adjusted.
Married Filing Jointly
Earned Income Tax Credit
The earned income tax credit has been adjusted slightly as well as income limits. The following table shows the maximum credit amount per household size.
Child Tax Credit
The new tax law allows you to take full advantage of the child tax credit up to much higher income limits.
The mortgage interest deduction has been changed to only allow interest to be deducted up to a maximum debt of $750,000. This has been reduced from $1,000,000. If you had a mortgage before December 15, 2017 you do not need to worry however, because you are grandfathered in from the previous tax code.
Home Equity loan debt under the previous tax code was deductable up to $100,000. Under the new tax law home equity loan interest can no longer be deducted.
For charitable contributions a minor change has occured. Under the previous laws you could deduct up to 50% of your total income in charitable donations. You can now deduct up to 60% of your income as charitable donations.
Medical expenses has been adjusted as well. Under the old law you could only deduct medical expenses that were more than 10% of your adjusted gross income. This has been changed to all medical expenses over 7.5% of your adjusted gross income.
The state and local tax deduction has been limited under the new tax laws to $10,000. This includes income, sales, and property taxes.
Some deductions that have been removed from the new tax code are as follows:
- Casualty and theft losses
- Unreimbursed employee expenses
- Tax preparation expenses
- Moving expenses
- Subsidized Parking and transportation reimbursement