2018 Tax Changes and What You Can Do

It is tax time again, and some really big changes have taken effect for tax year 2018. I’m going to spell out some of these changes and give some recommendations about what to do going forward. This is not comprehensive, but I hope that it will help bring awareness.

Changes to the Standard Deduction

2017: Single $6,500 Head of Household $9,550 Married Filing Jointly $13,000

2018: Single $12,000 Head of Household $18,000 Married Filing Jointly $24,000

With the Tax Cuts and Jobs Act of 2017, the most striking change is that the standard deduction almost doubled. Before you get too excited, the next biggest change was the elimination of personal exemptions = $4050 per person. What does this change mean for your situation?

Single person who never itemized:

2017 deductions = $6,500 + 4,050 = $10,550

2018 deductions = $12,000.

This person’s deductions would increase $1,450

Family of four who never itemized:

2017 deductions = $13,000 + ($4050 * 4 people) = $29,200

2018 deductions = $24,000.

This family’s deductions would decrease -$5,200

There is some potentially positive news for the family of four: the child tax credit increased from $1,000 to $2,000 per qualifying child. This could help make up for the decreased deductions.

What if you own a home and previously itemized?

Because of the significant increase in the standard deduction, many more people are projected to switch to using the higher standard deduction in 2018. Also, there have been significant limits and eliminations to the list of things you can itemize: state property taxes are limited to $10,000, and the Miscellaneous Items were eliminated. This means that moving expenses, unreimbursed employee expenses, home office for employees, tax preparation fees or investment advisor fees, and casualty and theft losses are no longer deductible.

What should you do with these changes?

The first thing that you should do is meet with your employer or Human Resources Representatives and update your W-4. The W-4 helps calculate how much federal tax should be withheld during the year, and this form’s calculation has changed. Whether you are getting a tax break or may need to pay more, the W4 is a critical tool to prepare for changes now and avoid a panic at the end of 2019.

The second thing to do is shift your focus from deductions to credits. Credits are different from deductions because they reduce the amount of your tax to be paid rather than reducing your income (deductions) before taxes are calculated. Since most people will now use the standard deduction, credits are going to make a much greater impact. Some credits to look for include: the earned income tax credit for low income tax payers, child tax credit, the new non-child tax credit, child and dependent care credit, education credit, retirement savings contribution credit, and healthcare premium tax credit. Be sure to investigate each credit as they all have different limitations and phase-outs.

If you need help or have questions My Bekkedahl is accepting tax return clients. I look forward to helping you navigate these changes. Let’s get your taxes done!