At the end of 2017, Congress passed and President Trump signed the Tax Cuts and Jobs Act. Now that the dust has settled, let’s see how this will affect our taxes when we file our 2018 tax return.
Almost all of the tax brackets have been lowered/adjusted. The 15% bracket was changed to 12%. The 25% bracket was lowered to 22%, etc. This means that you will owe less taxes for the same wage.
The “marriage penalty” has been eliminated for all households earning less than $400,000. These households will pay the same tax bill whether they are married or not.
The standard deductions have been raised. If you itemized your taxes last year, odds are you will not in 2018. This is probably more of a simplification than a tax reduction. The standard deduction for a Single tax filer was raised from $6,500 to $12,000. For someone who is Married Filing Jointly, the standard deduction is now $24,000 from $13,000. It is estimated that only 6% of filers will need to itemize their deductions next year.
Talking about deductions, the maximum deduction for state and local taxes has been capped at $10,000. If you pay $8,000 in property taxes and $6,000 in state taxes, you used to be able to deduct $14,000 via your itemized deductions. With the new tax law, your deduction is capped at $10,000. Capping this deduction hurts taxpayers in high tax states like New York and Illinois and may cause some of them to actually pay more federal tax.
Other deductions have been eliminated. Casualty and theft losses, tax preparation expense, moving expenses, employer-subsidized parking and transportation expenses as well as any miscellaneous deductions that were subject to the 2% AGI cap (investment expenses included) have been removed.
While the Affordable Care Act is still in place, you are no longer penalized if you do not have health insurance. Also the Alternative Minimum Tax (AMT) has been changed so that (once again) it only affects high-income households.
These are just some of the changes made by the Tax Cuts and Jobs Act. As always, work with a tax professional to make sure that you are minimizing your tax exposure while paying your fair share.