The Tax Cuts and Jobs Act, the tax reform legislation passed last December, made major changes to the tax law, including increasing the standard deduction, removing personal exemptions, increasing the Child Tax Credit, limiting or discontinuing certain deductions and changing tax rates and tax brackets. Any of these far-reaching changes could have a big impact on the tax refund or balance due on your tax return next year.
Changes that affect high-income taxpayers:
For 2018, the standard deduction nearly doubled to $24,000 for joint filers and $12,000 for singles. There were also numerous changes to itemized deductions, including:
- A $10,000 cap on deductions for state and local property, sales and income taxes.
- Reduced limits on deductions for some mortgage interest and home equity debt.
- Higher limits on the percent of income a taxpayer can deduct as charitable contributions.
- No deduction for those miscellaneous expenses that, in prior tax years, had to exceed 2 percent of a filer’s income to qualify. These included investment expenses and un-reimbursed employee expenses such as travel, meals, entertainment and uniforms.
Many who itemized in the past may find they’ll pay less tax in 2018 by taking the standard deduction.
Changes that could affect the withholding of parents and caretakers:
Child tax credit
- The maximum child tax credit doubled from $1,000 to $2,000 per qualifying child.
- Taxpayers whose income was too high to benefit from the Child Tax Credit in prior years may now find they qualify.
- The credit now phases out at $400,000 for couples and $200,000 for singles, compared with 2017 amounts of $110,000 for couples and $75,000 for singles.
Additional child tax credit
- The maximum additional child tax credit increased from $1,000 to $1,400.
- The ACTC is a refundable credit for taxpayers who owe little or no federal income tax.
Credit for other dependents
- There’s a new $500 credit that can benefit taxpayers who support other dependents.
- The taxpayer will claim the credit when filing a tax return.
- For purposes of this new credit, other dependents count including qualifying children or qualifying relatives, such as a college student or an elderly parent.
- The new law removes the personal exemption that taxpayers formerly claimed for themself, their spouse and dependents.
Contact Your Preparer to do a ‘Paycheck Checkup’
Checking and adjusting how much tax is withheld from your pay now can prevent an unexpected tax bill and penalties next year at tax time. It can also help you avoid a large tax refund, if you’d prefer to have your money in your paychecks throughout the year.
Please contact your tax preparer for help with adjusting your withholdings or to answer any questions about the tax changes.