The New Tax Cuts and Jobs Act is now law and goes into effect this tax season. There are several changes which may affect you in several ways.
1. Your tax rates may be lowered
The new tax law keeps the same structure of seven individual tax brackets as the previous tax law, but most brackets are now at lower rates. The rate for the lowest bracket remains 10%, but most people will pay less. However, these tax rates expire after 2025 and will then revert to previous rates.
2. The Child Tax Credit increases
This credit increases from $1,000 to $2,000. Parents that do not earn enough to need to pay tax can still claim this credit up to $1,400.
Parents can use 529 savings plans to pay tuition at private and religious K-12 schools.
3. Your standard deduction nearly doubles
The standard deduction increases for all filing statuses. For singles, it increases from $6,350 to $12,000. For heads of household, it increases from $9,350 to $18,000. For married filing jointly, it increases from $12,700 to $24,000. Or, you can still itemize your deductions instead of taking the standard deduction. But you will probably find this will not save you money. An estimated 94% of taxpayers are expected to take the standard deduction next tax season.
4. Some of your itemized deductions are now eliminated
Personal exemptions are eliminated. Previously, taxpayers could subtract $4,150 from income declared for each person claimed. That is gone until 2026.
Moving expenses are also gone, except for active duty military.
The deduction for alimony payers is also gone. However, beginning January 2019 those with prior agreements are grandfathered in.
Some other itemized deductions have also been eliminated.
But charitable contributions, student loan interest, and retirement savings are still deductible.
Itemized deductions for taxes including state and local taxes are now capped at $10,000.
The deduction for mortgage interest is now limited to the first $750,000 of the mortgage loan.
5. Elder Care
There is a $500 credit for each non-child dependent to help families who care for elderly parents or other dependents.
6. The Health Insurance mandate is eliminated
This part of the Affordable Care Act that requires you to buy health insurance or pay a penalty is gone beginning in 2019.
This is a summary of the changes in tax law, but if you want to know more about how they affect you, our knowledgeable accountants can help. Call us today at (561) 501-3080!