In December of 2017, President Trump signed the Tax Cuts and Jobs Act into law. Though it was touted as a way to reduce the burden for taxpayers, there are a few controversial changes to individual taxes.
While the full effects won’t be seen until you file your taxes next year, it’s a good idea to start planning now. The IRS issued $437 billion in refunds for FY2017, and you can potentially claim a bigger share in 2018.
And if you still have questions about the changes, feel free to get in touch with the True Resolve Tax Professionals for expert guidance and tax preparation help.
#1 The Standard Deduction Has Been “Doubled”
While this comes across as a great way to cut taxes, this is one of the changes to individual taxes that’s been overstated by supporters of the new tax bill.
While your standard deduction will nearly double, your personal exemption has been cut, wiping out a good amount of the purported tax cut. If you file as single, this is how it works:
- Previously, you’d have a $6,500 standard deduction and a $4,150 personal exemption
- Now, your standard deduction is $12,000 and $0 for your personal exemption
While the new $12,000 standard deduction is higher than the combined $10,650 for previous years, it’s not actually doubled. But it sure sounded good.
And by moving money from the exemption to the deduction column, millions of taxpayers will no longer benefit from itemizing. Now, maximizing your returns beyond the standard requires a strategy and knowledge of the new tax codes.
#2 The Child Tax Credit Has Been Doubled
Here’s an area where doubling is actually doubling, and that’s great news for families. The new law takes the Child Tax Credit, available for your qualified children under age 17, from up to $1,000 to $2,000.
Plus, while the credit was non-refundable in 2017, you can now potentially pocket up to $1,400.
In addition, the “phaseout threshold” that adjusts how much of that $2,000 credit you qualify for has increased greatly, from $75,000 to $200,000 for individuals and $110,000 to $400,000 for joint filers.
#3 Home Mortgage Interest Takes a Hit
For homeowners in states and cities where buying property is expensive, this is one of the changes to individual taxes that will have a major impact. For example, the median home price in Boulder climbed to $855,000 in 2017. So, if you’re looking to buy in that area, keep the following figures in mind.
While the mortgage interest deduction previously applied to a mortgage debt of up to $1 million, the new law drops that amount to $750,000 when it comes time to file for 2018. Before you panic, this only applies to mortgages originated after December 15, 2017. Pre-existing ones will be grandfathered in.
#4 Charitable Donation Caps Have Been Increased
If you have ample income and love to donate to your favorite charities, you’ll be happy to know that the cap for donations has been increased from 50% of your income to 60% of your income.
In fact, a tax strategy that might work for you and help you cross over to itemizing your deductions (and maximizing your refund), is to bunch two years of charitable donations into one. Here at True Resolve, we can explain this further and provide even more individual tax strategies.
#5 Medical Expenses Are Now Easier to Deduct
Health issues can lead to significant, unreimbursed medical expenses (out-of-pocket costs) even if you have insurance. The new threshold for this deduction has dropped to just 7.5% of your adjusted gross income (AGI) when it was previously 10%.
So, let’s say your AGI is $40,000. Previously, you could only deduct unreimbursed medical expenses if they exceeded $4,000. Now, that has been lowered to $3,000. Even with decent insurance, knee surgery followed by ongoing rehabilitation could certainly put you in range.
Confused About the Changes to Individual Taxes?
If you’re still unsure about the new tax laws and how they’ll affect you and your family, give the True Resolve Tax Professionals a call today. Our licensed tax experts specialize in reducing your liability and maximizing your returns. We’re here to help!