New Tax Laws – What You Need to Know
It’s been almost a year since the Tax Cuts and Jobs Act (TCJA) brought sweeping changes to the American tax system. Sitting down to do your taxes in the next few weeks – or talking with your tax preparer – will involve tackling the most sweeping changes in the federal income tax rules in more than 30 years. Let’s look at some of the changes.
–All individual taxpayers will now use the same 1040 simple form. It replaces the old 1040, the 1040A and the 1040EZ. You may need to file supplemental schedules with your 1040 in certain cases, such as if you itemize deductions or qualify for a variety of tax credits other than the basic child tax credit.
Should you Itemize this Year?
“You still want to run your numbers both ways,” said Jackie Perlman, tax research analyst at H&R Block’s Tax Institute, meaning you should try itemizing and comparing the outcome with just taking the standard deduction.
Families who own a home, in particular, will want to review whether they’d still itemize to lower their tax bill. You’d need deductions to exceed the new higher, standard deduction, which is nearly double from a year ago. And you’ll face new limits relating to the deduction you can take on property and income taxes.
Married couples filing jointly are looking at a standard deduction of $24,000 on their 2018 federal income tax returns — $11,300 up from the old amount of $12,700 on the 2017 tax returns.
Single filers are looking at a standard deduction of $12,000 — up by $5,650 from the old amount of $6,350 on 2017 returns.
But there also is an additional standard deduction for those who are 65 or older, or blind.
If married filing jointly, and you or your spouse are 65 or older, you may increase your standard deduction by $1,300. If both of you are 65 or older, the additional standard deduction goes up to $2,600.
If you file under single or head of household and are 65 or older, you may increase your standard deduction by $1,600.
Child Tax Credit
Most parents across the country with young children or teens will be able to tap into the child tax credit on their 2018 federal income tax returns – even if they couldn’t use that credit in the past.
To claim the credit, the child must be 16 years old or younger, as of Dec. 31, and claimed as a dependent on your tax return. The child also must have a valid Social Security number.
The maximum credit has gone up to $2,000 from $1,000.
Another plus: Now, up to $1,400 per child is available as a refundable credit. Families can claim the credit if they earn the income of $2,500 or more in income. As a result, some families can get refunds even if their taxes are $0
In the past, taxpayers could take an exemption deduction for themselves, spouse and each of their dependents. Each personal exemption reduced gross income by $4,050 on 2017 returns. A new credit, often called the Credit for Other Dependents, offers $500 for each qualifying child or other dependent relatives, such as older relatives in your household, if they do not qualify for the child tax credit. Now exemptions have been eliminated.
What Else Has Been Eliminated?
Business Expenses: If you have unreimbursed business expenses from last year, you won’t be able to deduct those anymore. Depending on your job, this could be a big loss. This can include travel expenses from business travel your employer didn’t pay for, scrubs or uniforms you paid out-of-pocket; or continuing education classes you took for your profession.
Job search expenses: You can no longer deduct for expenses related to finding a new job. Before those expenses could include travel costs incurred for a job interview, fees for resume and cover letter services, or fees for job-placement services. “Even if you didn’t get the job,” said Lisa Greene-Lewis, a certified public accountant and tax expert at TurboTax.
Tax preparation fees: You can’t write off any costs from getting help with your taxes from 2018 through 2025 under the new tax law changes. There’s one exclusion: Self-employed workers can still deduct these services as a business expense.
Charitable contributions: Since the standard deduction claimed by individuals or couples has nearly doubled, fewer people will itemize and you must itemize in order to deduct charitable donations from your taxes.
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