The Tax Cuts and Jobs Act of 2017, which has been touted as the most significant tax overhaul in at least 30 years is changing some of the deductions that American families have come to rely on. While experts say that there will still be tax savings for most American’s, it’s important to note what deductions are changing now, so that taxpayers are surprised when they file taxes next year.
The standard deduction
This is some good news for taxpayers as the standard $6,350 deduction will increase significantly to $12,000 for individuals. Married couples also have something to celebrate as the standard deduction increases from $13,000 in 2017 to $24,000 in 2018. Head of household filers won’t be disappointed either, as their standard deduction increases from $9,550 in 2017 to $18,000 in 2018.
This also means that for many filers, there won’t be the need to save the same receipts and documentation in previous years as itemization will be a moot point with the new standard deductions. Experts recommend looking at your previous taxes to determine if you will still need to itemize. If your deductions are significantly less than the new limit, saving those receipts probably isn’t necessary.
Deductions for moving expenses
Armed Forces members will still be able to deduct moving expenses from their 2018 taxes, but they’re the only ones. Taxpayers who have previously been able to deduct expenses for work-related moves won’t be able to next year.
Personal exemption changes
While it’s great that taxpayers will see higher standard deductions, that won’t benefit everyone. At least some households will lose their $4,050 personal and dependency exemptions, which might be a burden for some families.
Under the new law, taxpayers will no longer be able to subtract $4,050 from their taxable income for each dependent they claim. That might hurt some larger families, although an increase in the child tax credit is supposed to offset the loss. For families whose children are over the age of 17, they won’t get to subtract the $4,050 from their taxable income, and they won’t receive the child tax credit either.
Alimony deduction changes
For the millions of Americans that are divorced and have alimony agreements, there are significant changes as well, with those that pay alimony unable to deduct that money from their federal taxes. This won’t affect some taxpayers yet, as the deduction is being eliminated for divorces commencing after the end of 2018.
Charitable donations have been deductible for up to 50 percent of taxpayer income for years, but beginning next year that percentage raises ten points to 60 percent. Of course, taxpayers will still need to keep records of their donations, along with any acknowledgment letters from organizations. There are some eliminations here, however, and taxpayers who make donations to a college in order to buy athletic tickets won’t be able to deduct those donations in 2018.
Tax preparation fees
For years, taxpayers have paid preparation fees knowing that those costs would be deducted from their taxes in the following year. That’s no longer true under the new tax code. That means any tax preparation fees paid in 2017, won’t be deducted from taxable income in 2018.
State and Local Tax Deductions
State and local taxes can still be deducted from taxable income, but there are changes forthcoming. The deduction for state and local taxes was almost removed from the Tax Cuts and Job Act but has remained in place, although taxpayers can expect a $10,000 cap on the amount of income, sales, and property taxes that can be deducted starting next year.
Overall, the Tax Cut and Jobs Act makes some significant changes not only to the available deductions but also to the way in which American taxpayers must document their financial records in the coming years. For those that will see an increase in the amount they pay the federal government, there is still hope, however, as the Tax Cuts and Jobs Act will expire in 2025 unless Congress acts to extend it.