With over a hundred changes made by the Tax Cuts and Jobs Act, your taxes could look a bit different come April. You may have not owed taxes in years prior, but that could change due to the new limits placed on tax deductions and tax deductions that were eliminated due to the new tax reform. With these changes, it’s important to make sure you check your withholding's and check to see if the deductions you took the previous year are still there.
One of the biggest changes made by the Tax Cuts and Jobs Act was that the tax rates were decreased which meant more money was showing up on your paycheck. On average, tax rates were reduced from about 1% to 3% for most taxpayers. The IRS did adjust the withholding tables that employers use to produce the correct amount of tax withholding. Make sure that your current withholdings are correct and that your employer has the correct information.
If you itemized your federal tax return last year, you may want to double check before you choose to itemize again this year. Several deductions have been either eliminated or limited and so you may not be able to deduct the same amount as last year. Along with the eliminations of several deductions, the tax reform nearly doubled the amount of the standard deduction. For instance, the standard deduction for a single flier was increased to $12,000, while the deduction for a married couple filing together was increased to $24,000. One exemption that was eliminated with the Tax Cuts and Jobs Act was the personal exemption. The personal exemption was worth $4,050 per person in 2017. This exemption was also coupled with the standard deduction and saved families thousands of dollars every year. The amount you could deduct for Medical Expenses was also limited. The percentage dropped from 10% to 7.5%. You also can no longer take miscellaneous itemized deductions. If you moved for work or spent money in search for a job, those items are no longer deductible.
One good thing for taxpayers with children is the Child Tax Credit increased under the new tax law. Although you can’t take the dependent deduction, the Tax Cuts and Jobs Act increased the Child Tax Credit from $1,000 to $2,000 per child. You also can get a new non-refundable credit of $500 for dependents other than children. With the increase, the new tax law also increased the income threshold at which these benefits phase out at. The Child Tax Credit only applies to children under the age of 17.
If you bought a home this year, some of the changes will affect you and your taxes a little more than you may have thought. If you already have a home, you will see fewer tax deductions available to you, which may create a tax debt if you haven’t had one in years past. One deduction that will hurt homeowners in certain states is the new limit for the state and local taxes deduction. The deduction is now limited at $10,000, whereas previously you could get the full amount of your taxes deducted. If you are purchasing a house this year, it’s important to know that the new tax law caps your mortgage indebtedness on new home purchases. The new law limits the amount of interest you can deduct at $750,000, down from a million dollars.
If you need help filing your tax return this year, Polston Tax can help. Our team of tax consultants can help you decide if the standard deduction is the best options for you and which tax credits and tax deductions work with your financial situation. Don’t try to guess whether you should take a tax deduction, call us today at 844-841-9857 or click below to schedule your free consultation.