There has been a good deal of discussion recently about tax reform in 2018 and rightfully so. Whether you are a homeowner, employer, employee, contractor, investor, retiree or any combination of the above, I don’t have to tell you the impact that tax laws can have on your lifestyle and future financial plans. However, with proper research and consulting with one of our tax experts, you can proactively take on tax reform and hopefully keep more of your hard-earned money.
The bulk of the conversation regarding the 2018 Tax Law has been around the changes in scheduled tax rates. Everyone, regardless of income, sees their tax rate decrease in 2018. In addition, the standard deduction also increases substantially for taxpayers. Okay, great. So there really is nothing to worry about and everyone keeps more of their money, right? The answer is yes or no and it really comes down to the changes in deductions. Under the new tax plan, there are number of notable changes for deductions. Below, I have outlined some of those changes that will take effect in 2018. In the coming weeks, we also will also be posting more articles on the 2018 tax law, so please be sure to check back and feel free to leave comments.
Notable changes in deductions
Child Tax Credit
The Child Tax Credit under the 2018 tax bill could have the largest impact on American families. Under the new plan, the amount per each qualifying child doubles from $1000 to $2000. So obviously, if you have two children, your credit becomes $4,000, which isn’t bad. Keep in mind that the Child Tax Credit is not a deduction, but a credit, which can reduce your bill and maybe even help you get some money back. If your bill to the IRS is $3500 and you have one qualifying child, your bill drops to $1500. Another important feature of the the Child Tax Credit is that it is refundable up to $1400. So, let’s say you have no tax liability and claim one child, you would then receive a refund of $1,400.
Mortgage Interest Deduction
Although state and local property tax is capped at $10,000 under the new tax plan, you may still deduct interest paid on your home mortgage. However, this now only applies to those whose mortgage is $750,000 or less. When it comes to deducting mortgage interest, the new tax bill is likely to hurt some owners in high housing cost areas, such as New York, San Francisco, Los Angeles, Washington DC and parts of the Northeast.
Charitable Contribution Deduction
While charitable donations from wealthy taxpayers are expected remain unchanged, the new tax law is expected to significantly reduce charitable donations by moderate-income workers. The main reason is the doubling of the standard deduction from $12,000 to $24,000 for married couples. With the increase in the standard deduction, it won’t make much sense for moderate-income families to include itemized deductions, such as charitable donations, when they file their taxes. As a result, there is expected to be a modest decline in charitable giving in the next few years.
State and Local Tax Reduction
The new bill restricts the SALT (State and Local Property tax) reduction to $10,000 whereas it was unlimited in years past. Due a loophole that leaves 2017 property taxes open, many taxpayers have been scrambling to pay their 2017 property taxes so they can claim it on their 2018 tax filing before the new law goes into effect. However, it remains to be seen whether or not the IRS will accept these prepayments of property taxes. Taxpayers in high income states and counties are expected to be impacted the most by this change.
Medical Expenses Deduction
Under the new GOP tax bill, medical expenses remain at least for a couple of more years. Taxpayers whose medical expenses exceed 7 1/2 percent of their adjusted gross income, can claim a deduction for 2017 and 2018. After that, individual taxpayers can continue to claim a deduction for expenses that exceed 10 percent of their adjusted gross income.
Notable deductions that disappear under the 2018 Tax Law
There are number of itemized deductions that go away under the new tax law. While many Americans will regret seeing these eliminated, the doubling of the Standard Deduction starting in 2018, should help to offset the loss of these. The following are popular deductions for taxpayers that no longer exist under the new tax policy.
- Unreimbursed employee expenses
- Tax preparation expenses
- Moving expenses
- Employer-subsidized parking and transportation reimbursement
- Subsidized parking and transit reimbursement
Planning for tax reform in 2018?
Now is the time to build the best strategy and approach for the new tax regulations in 2018. Get in touch with our tax experts, so that we can help you keep more of your money.
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