How the new tax law will affect your 2018 return:
The biggest change this year is a higher standard deduction: $12,000 for single filers, $18,000 for heads of household and $24,000 for people married filing jointly.
What are the biggest changes this year?
New standard deductions. By far the biggest change is a new, higher standard deduction. It’s $12,000 for single filers, $18,000 for heads of household and $24,000 for people married filing jointly. Taxpayers have always had a choice between taking the standard deduction and itemizing — taking individual write-offs for things like mortgage interest and charitable contributions — but because the standard deduction has gone up, itemizing will make sense for fewer people. According to estimates from TurboTax, nearly 90 percent of taxpayers will now take the standard deduction, up from about 70 percent in previous years. (If you’re unsure which camp you’ll fall into, there’s an interactive calculator here.)
New limits on State and Local Income Tax (SALT) deductions. Per the new law, deductions are limited to just $10,000. (If you’re keeping up, you’ll note that’s $8,500 shy of where Ednie’s family would like it to be.) While this change won’t be a burden to all homeowners, it will hit folks hardest in states with the highest property taxes, which include New Jersey, Connecticut, Wisconsin, Illinois and California.New rules around medical expense deductions. In years past, your medical expenses had to exceed 10 percent of your annual income before you could deduct them, but now if they exceed 7.5 percent you can enjoy that deduction — if you itemize.
Dependent exemptions have been eliminated, but child tax credits have been increased. The $4,050 exemptions that millions of parents (including Ednie) had grown accustomed to taking for their children are no longer allowed, but the child tax credit was raised from $1,000 to $2,000, for children under 17, and families earning up to $400,000 can take advantage of the credit. The law also introduced a $500 credit for non-child dependents, which could include elderly parents or children over the age of 17, explains Lisa Greene-Lewis, CPA and TurboTax expert.
Moving expenses are no longer deductible. Even if you complete a necessary cross-country move for a new job, you’re no longer allowed to deduct those expenses under the new law. This does not include active duty military personnel, or companies that move. (So small business owners can still claim moving expenses on their business taxes.) One bright spot here, though: if your company is reimbursing you for your moving expenses, you no longer get taxed on that reimbursement as if it were income, explains Kathy Pickering, Executive Director of The Tax Institute at H&R Block.529 accounts aren’t just for college anymore.
In the past, funds from 529 educational savings plans could only be used for college, but under the new law, families can use them for tuition expenses for grades K-12 as well as for university studies. “This can be really beneficial for parents paying for private school or religious schools who have those kinds of expenses,” Pickering says.