Changes Taking Effect for Tax Year 2018 (Tax Returns Prepared in 2019)

The new tax reform bill overhauls the Internal Revenue Code and provides broad tax relief to workers, families and businesses of all sizes. Tax rates are lowered for individual taxpayers and businesses, taxed deductions and credits are increased, and various tax deductions and credits are eliminated or reduced. A typical family of four earning $73,000 a year could receive a tax reduction of as much as $2,000. Most of the provisions contained in the tax reform bill apply to tax year 2018 (the taxes filed in 2019) and future years up to December 31, 2025.

Here is a breakdown of some of the major provisions in the new tax bill and how they may impact your clients:

  • Income Tax Rates: Individual tax rates are 10%, 12%, 22%, 24%, 32%, 35% and 37%.
  • Standard deduction: Single taxpayers will see their standard deduction jump from $6,350 for 2017 taxes to $12,000 for 2018 taxes, while married couples filing jointly will see an increase from $12,700 to $24,000.
  • Kiddie Tax: Provision is modified whereby the taxable income of a child that is attributable to earned income is taxed at single rates and unearned income is taxed at trust and estate rates.
  • Personal and dependent exemptions: These are eliminated in the new bill.
  • State and local taxes/home mortgages: The bill limits the amount of state and local property, income, and sales taxes that can be deducted to $10,000. It also caps the amount of mortgage indebtedness on new home purchases on which interest can be deducted at $750,000, down from $1,000,000 in current law.
  • Heath care: The bill eliminates the tax penalty for not having health insurance after December 31, 2018. It also temporarily lowers the floor above which out-of-pocket medical expenses can be deducted from the current law floor of 10% to 7.5% for 2017 and 2018.

If you have questions on how any of these changes could effect you when you file next year's tax return, feel free to give us a call to look over your current situation. We can be reached at 715-672-8644.