By Constant W. Watson III, CPA, Contributing Writer
The “Tax Cuts and Jobs Act” that was recently passed, will have an impact on just about all taxpayers. No matter whether your filing status is Married, Single or Head of Household, you need to be aware of this new law.
Some deductions that you had in the past may be eliminated or reduced. So, one of the first things that you need to review is your tax withholding. Not having enough withholding taken out of your check will increase the chances that you may owe when you file your 2018 income taxes.
Here’s an overview of the tax law changes for 2018 and how they may impact you.
The standard deduction amount has increased. For 2018, the standard deduction amount has been increased for all filers, and the amounts are as follows.
- Single or Married Filing Separately: From $6,350 to $12,000.
- Married Filing Jointly or Qualifying Widow(er): From $12,700 to $24,000.
- Head of Household: From $9,350 to $18,000.
Due to the increase in the standard deduction and reduced usage of itemized deductions, you may want to consider filing a new Form W-4.
The deduction for personal exemptions has been suspended. For 2018, you can’t claim a personal exemption deduction for yourself, your spouse, or your dependents. That’s right! Personal Exemptions have been eliminated for 2018.
Itemized deductions have changed. For 2018, the following changes have been made to itemized deductions that can be claimed on Schedule A.
Your itemized deductions are no longer limited if your adjusted gross income is over a certain amount. You can deduct the part of your medical and dental expenses that is more than 7.5 percent of your adjusted gross income.
- Your deduction of state and local income, sales, and property taxes is limited to a combined, total deduction of $10,000 ($5,000 if married filing separately).
- You can no longer deduct job-related expenses or other miscellaneous itemized deductions that were subject to the 2 percent of Adjusted Gross Income floor. You may still deduct certain other items on Schedule A, such as gambling losses.
- For debt incurred after December 15, 2017, the deduction for home mortgage interest is limited to interest on up to $750,000 of home acquisition debt. This new limit doesn’t apply if you had a binding contract to close on a home after December 15, 2017, and closed on or before April 1, 2018, and the prior limit would apply.
- You can no longer deduct interest on home equity debt. Only if the loan is used for substantially improving your home, that is securing the debt, can it be deductible.
- The limit on charitable contributions of cash has increased from 50 percent to 60 percent of your adjusted gross income.
- Moving expenses are no longer deductible. For 2018, you can no longer deduct your moving expenses unless you are a member of the Armed Forces on active duty.
The child tax credit and additional child tax credit have increased. For 2018, the maximum credit increased to $2,000 per qualifying child. The maximum additional child tax credit increased to $1,400. In addition, the income threshold at which the credit begins to phase out is increased to $200,000 ($400,000 if married filing jointly).
Credit for other dependents. A new credit of up to $500 is available for each of your dependents who does not qualify for the child tax credit. In addition, the maximum income threshold at which the credit begins to phase out is increased to $200,000 ($400,000 if married filing jointly).
Social security number (SSN) is required for child tax credit. Your child must have an SSN issued before the due date of your 2018 return (including extensions) to be claimed as a qualifying child for the child tax credit or additional child tax credit. If your dependent child has an Individual Taxpayer Identification Number (ITIN), but not an SSN, issued before the due date of your 2018 return (including extensions), you may be able to claim the new credit for other dependents of that child.
As you can see, there have been some significant changes made. One of the best things you should do is sit down with a tax professional and review your prior year tax and discuss how the new law will affect your 2018 taxes. Remember, for every tax problem there is a solution.
Constant W. Watson III, CPA, CTRS, is both a Certified Public Accountant and one of only ten Certified Tax Resolution Specialists in the State of Illinois certified by the ASTPS. Watson has more than 30 years of income tax and accounting experience. You can hear his radio program, “Watson On Taxes,” every Saturday morning at 10 a.m. by tuning in to AM 1390. For more information, visit WatsonOnTaxes.com or call (708) – 206 -9900.