The new tax law was signed into law on December 22, 2017. For most Americans, these tax changes are just becoming apparent this tax return season.
According to turbotax.intuit.com major changes include:
- Lower individual tax rates
- Increased standard deduction
- Increased child tax credit
- Elimination of dependent and personal exemptions
- Elimination of some itemized deductions
- $10,000 cap on the deduction for state income taxes, sales, and local taxes, and property taxes combined
- 20% deduction for “pass-through” entities (sole proprietorship, partnership, S corp.)
- Increased expense limits for capital assets
Here are two examples of tax situations and why your return may look different
You take the standard deduction
Turbo tax.com says If you normally claim the standard deduction (The vast majority of Americans do) you may see less tax liability in 2018 since the new tax law nearly doubles the standard deduction amount. Today, roughly 30% of taxpayers itemize instead of taking the standard deduction.
In 2017 the standard deduction was $12,700 for married couples. In 2018 it was raised to $24,000. It reflects an increase of $11,300.
Single taxpayers will see their standard deductions jump from $6,350 for 2017 taxes to $12,000.
So it should be bigger right?
The IRS eliminated the personal exemption for individuals of $4,050 per person, or $8,100 for married couples.
If you take the standard deduction increase of $11,300 and subtract $8,100 the difference is $3,200.
Most people thought they were getting a reduction of almost $12,000 because of the doubling of the standard deduction.
Married with children
Turbo tax.com says the dependent exemption deduction was eliminated beginning in 2018.
But families with kids may have a bigger tax refund next year since the child tax credit doubled from $1,000 to $2,000.
The new law also adds a non-refundable credit of $500 for dependents other than children.
“Tax credits are a direct reduction from the taxes you owe so they mean more than a deduction that reduces taxable income.”
The income threshold for claiming these has been increased from $110,000 to $400,000 for a married couple.
