As 2018 ends and the new year begins, along comes the new tax season. With the partial government shutdown, no one really knows how the upcoming tax season will be immediately impacted. What we do know is that the season will be significantly different than it has been in the past. A slew of updates from the IRS and major tax reform passed by Congress could significantly alter your situation for the 2018 tax year.
The IRS unveils its changes each year, including cost-of-living adjustments for retirement savings and inflation changes for certain tax provisions.
Those updates, coupled with new rules passed by Congress through the Tax Cuts and Jobs Act, could result in a big difference in how much you owe.
Here are some of the most prominent changes that could affect you.
Those who are married and filing jointly will have an increased standard deduction of $24,000, up from the $13,000 it would have been under previous law.
Single taxpayers and those who are married and file separately now have a $12,000 standard deduction, up from the $6,500 it would have been for this year prior to the reform.
For heads of households, the deduction will be $18,000, up from $9,550.
The personal exemption has been eliminated with the tax reform bill.
Child tax credit:
The child tax credit has been raised to $2,000 per qualifying child, those who are under 17, up from $1,000. ($1,400 is refundable for 2018). A $500 credit is available for dependents who do not get the $2,000 credit.
The deduction for interest is capped at $750,000 for mortgage loan balances taken out after Dec. 15 of last year. The limit is still $1 million for mortgages that were established prior to Dec. 15, 2017.
State and local taxes:
The itemized deduction is limited to $10,000 for both income and property taxes paid during the year.
Contribution limits for retirement savings:
Employees who participate in certain retirement plans ‒ 401(k), 403(b) and most 457 plans, and the Thrift Savings Plan – can now contribute as much as $18,500 this year, a $500 increase from the $18,000 limit for 2017.
If you have any questions, please reach out to your tax advisor. Most tax consultants agree that the new simple “Post Card” tax return will be anything but simple.
Bob Cross is an Enrolled Agent, authorized to practice taxation before the IRS, as well as a Registered Tax Planner.