Here are highlights of five major tax changes you shouldn’t ignore because they’re bound to make a difference to your tax situation and may cause you drama:
1. Larger standard deduction adds uncertainty. The standard deduction increased to $12,000 for individuals and $24,000 for married couples (up from $6,350 and $12,700, respectively). While some will find themselves moving from itemizing to using the standard deduction, many will not. This is especially true if you own a home, have high medical bills, or donate to charities. Single taxpayers will also find themselves less likely to use the standard deduction, as new deduction limits tend to favor them over married couples.
2. Limits added and deductions removed. A cap of $10,000 is placed on state tax deductions — this includes property taxes, state income taxes, and sales taxes. And home equity loan interest can now only be deducted if the funds are used to buy, build or significantly improve your home. Plus, all miscellaneous deductions have been eliminated, including non-reimbursed job expenses, union dues and investment-related expenses.
3. Proposed smaller Form 1040 requires six new schedules. In an attempt to deliver a postcard-sized Form 1040, the IRS has proposed a smaller Form 1040. Lines are combined or shifted to one of six new schedules. With the creation of the newly proposed form, the 1040EZ and 1040A would be eliminated. If published, the 1040 may be more complicated than ever.
4. Personal exemptions eliminated and the Child Tax Credit expanded. Personal exemptions of $4,050 for you, your spouse, and each dependent are gone. The Child Tax Credit, however, has been doubled to $2,000 per child. The income limits are drastically higher for the credit phaseout: $200,000 for single and $400,000 for married (up from $75,000 and $110,000, respectively). As a result, most people with children under age 17 will be entitled to the Child Tax Credit.
5. Big changes for small businesses. The top C corporation tax rate has been lowered to 21 percent (down from 35 percent). There is a new tax benefit for sole proprietors, partnerships, and S corporations in the form of a 20 percent qualified business income deduction.
In addition, bonus depreciation and Section 179 expensing have been expanded. Unfortunately, the domestic production activities deduction (DPAD) is no longer available this year.
With all of the tax changes, this year’s filing season is setting up to be an adventurous one. Call if you have questions.
YEAR-END 2018
This newsletter is issued annually to provide you with information about minimizing your taxes. Do not apply this general information to your specific situation without additional details. Be aware that the tax laws contain varying effective dates and numerous limitations and exceptions that cannot be summarized easily. For details and guidance in applying the tax rules to your individual circumstances, please contact us at (888) 388-1040.
