As a taxpayer, it's important for you to know about the significant changes the IRS made this year 2018 with regards to the Tax Reforms passed by the Congress. The IRS usually updates the policies every year such as the cost-of-living adjustments for retirements savings. They also include inflation changes to some tax provisions among others. You may be able to benefit or the other way around with these new rules especially when it comes to tax cuts and job act.
We listed the most important changes to the tax laws in hopes that it will benefit you for this year's tax season.
Increase In Standard Deductions
If you are you married and choose to file jointly, your standard deduction will increase to $24, 000 which is higher than what was under the previous law amounting to $13, 000. The standard deduction of $6, 500 for single taxpayers and married filing separately, on the other hand, increased to $12, 000. For heads of households, there will be a deduction of $18, 000. A huge difference from the previous $9, 550 standard deductions.
Suspension Of Personal Exemptions
The deduction for a personal exemption for this year has been effectively suspended and has reduced the exemption amount to zero. It is common knowledge that under the pre-act law, taxpayers are able to determine their taxable income by taking away personal exemption deductions to their adjusted gross income. Personal exemptions are generally allowed for any taxpayer, taxpayer’s spouse, and dependents. In the new law for this year, the personal exemptions are suspended.
New Top Income Rate
There is a new 37% top rate for individuals with an income of $500, 000 and higher. For married taxpayers filing jointly with an income of $600, 000 will have this new top income rate as well. Other tax brackets will be affected by this new tax law as well. To completely understand the new list of income tax brackets for singles, rates for married couples who file jointly, and rates for heads of household, consult a professional tax preparer who can discuss this matter more clearly with you.
Changes In Estate Tax
There is a significant change in the estate tax for this year tax season. It has doubled to $11.2 million per individual and $22.4 million per couple in 2018. If you could remember, the pre-Act law stated that the first $5 million of transferred property can exempt from estate and gift tax while estates of decedents dying and gifts made in 2018, the regular exemption amount was $5.6 million. This year’s new law has remarkably changed the previous one.
Raised Child Tax Credit
There is also an increase in child tax credit that you may want to take a look at if you have kids. From $1, 000 it has been raised to $2, 000 per child who is under 17 years old. If you’re dependents able to get the $2, 000 credit, you are still eligible for a $500 credit. There were other changes made to phase-outs and refundability according to the new tax law.
Mortgage Interest
This change is important for those who still have mortgage loan balances taken out after December 15, 2017. The deduction for interest is capped at $750, 000. If you have a mortgage balance before the mentioned date, the limit is still $1 million.
State and Local Taxes
Both income and property taxes that are paid within this year will be limited to $10, 000 of itemized deduction.
Retirement Savings Contribution Limits
You can now contribute as much as $18, 500 this year if you’re an employee participating in retirement plans such as 401 (k), 4013 (b), most 457 plans, and Thrift Savings Plan. Notice that it has increased from the previous $18, 000 limit last year.
IRAs Savings
If you contributed to any individual retirement accounts, you will have higher income brackets after the IRS made some cost-of-living adjustments. For those who are covered by workplace retirement plans such as some individuals and their spouses, their deduction is phased out. If you’re a single taxpayer, your limit will be from $63, 000 to $73, 000. For married couples, on the other hand, phase out range depends on whether the IRA contributor is covered by a workplace retirement plan or not. There were no adjustments on the phaseout for married individuals filing separately and are covered by workplace retirement plan.
