Tax Credits and Standard Deductions
The Tax Cuts and Jobs Act (H.R. 1) was signed by President Trump on December 22, 2017. With it, many deductions, tax credits and tax exemptions have changed. Households may be seeing a difference in their tax refund this coming year, both positively and negatively. Depending on your specific lifestyle – whether you have many children, care for an elderly person or pay alimony, you are affected by this new federal tax plan.
Changes in Tax Deductions
The Tax Cuts and Jobs Act doubles the standard deduction, which means less income can be taxed by the federal government. For instance, the single filer deduction was raised from $6,350 to $12,000, $18,000 for heads of households, and from $12,700 to $24,000 for married/joint filers. This affects 94% of taxpayers in the US.
It is important to keep in mind that some deductions have been removed altogether. Moving expenses for non-military members are no longer considered an itemized deduction. In addition, those paying alimony cannot deduct it, while those receiving alimony can. This means that the recipient does not have to treat alimony as income.
That being said, income tax deductions for charitable contributions, retirement savings, and student loan interest remain. Additionally, any medical expenses that are 7.5% or more of your income, are deductible under this new law, which is a 2.5% increase from previous tax plans (previously 10%).
However, it does limit the mortgage interest deduction to the first $750,000 in principal value, and limits the local and state tax deduction to a combined $10,000 for income, sales and property taxes. That being said, any taxes paid in carrying on a trade or business will not be limited.
Exemptions and Credits for Families
All personal exemptions have been eliminated. This means that families with many children may find themselves paying higher taxes, although there are increased standard deductions.
On the other hand, the Act increases the Child Tax Credit from $1,000 to $2,000. This increases the income level from $110,000 to $400,000 for married income tax filers. The first $1,400 is refundable. In addition, the new tax law institutes a $500 credit for each non-child dependent, which helps families caring for elderly parents.
Consult with a CPA Today
The new federal tax law will have a large impact on American taxpayers. Whether you are filing as a single person, married couple or business, this new plan changes your tax return, and as a result, possibly your IRS tax refund. We understand that there are a lot questions and concerns regarding these changes and it’s important to educate yourself.
If you are still unsure of how this actually affects your personal or business taxes in 2018, we urge you to consult an experienced tax professional. Our on-staff CPAs are available to answer any and all tax filing questions today. Plus we will provide a convenient report to understand how these new tax updates will affect your return for a positive increase.
We’re here to help. Call Paramount to schedule a consultation!