With less than a month to go in the tax filing season, many Americans have already seen the effect that the Tax Cuts and Jobs Act (TCJA) is having on their bottom line. In practice for the first time since being approved in December 2017, this new tax act is impacting everyone. Many people are finding minor decreases in their refunds or increases in their payment due. Tax preparers are spending a little more time working through questions and concerns with clients. So who is being impacted and what, if anything, can you do to improve your situation for next year?
The biggest impacts are to those with children and those who typically itemize deductions. Homeowners are seeing a definite change in tax refunds as well. The variation to your tax return depends upon so many different details it is almost impossible to give examples of every one. Filing status, income level, number of dependents, and whether or not you own a home all come into play in a variety of ways. Here are some common areas that are impacting most people.
The elimination of the personal exemption touches everyone but hits families the most. At $4,050 per person, for a single taxpayer, this might not be a big deal. But for a family of 4 – this means $16,200 MORE of your income is taxable since the personal exemption is gone.
However, the increase in the standard deduction does a good job making up for the personal exemption loss. At $24,000 for couples filing married and $12,000 if you are a single filer, this increase is all but equaling out the personal exemption for many. The child tax credit has increased, further helping families. An additional equalizer in many cases is the lowered income tax rates across tax brackets.
The net result of these changes is bringing many taxpayers within close range of how their 2017 tax refunds looked. However, the end of itemized deductions is an area that is also having an impact. Homeowners are especially noticing a change in their bottom line. How much you can deduct for home mortgage interest and home equity loan interest has been limited. Under the new tax laws, the amount you can deduct for state and local tax deductions is $10,000. This hurts taxpayers who would itemize their state and local income, property, and general sales tax payments on their federal tax returns. The TCJA eliminates the deduction for home equity loans.
So how do you prepare for next tax season? The IRS continues to recommend doing a paycheck check-up. The IRS has all the tools to complete a check-up on their website. It’s also a good idea to talk to a financial advisor or tax preparer to plan ahead for next year. If possible, wait until after the filing deadline when your tax preparer has time to sit down and think. We would be happy to help!