It’s that time of year again! Tax season. It’s simultaneously the best and worst time of the year, especially since it seems like the tax code changes every single year to be more and more complicated. Even if you go to a tax preparer, everyone should know what changed year over year. Before filing your taxes, we’ve outlined exactly what’s changed this year, so you can make sure everything is correct. The last thing anyone wants is an audit!
There are still seven different tax brackets, but there were a few changes. Across the board, tax rates were lowered except for the minimum tax rate, which remained at 10%. The new tax brackets are as followed:
- 10% if you make $9,525 or under while filing single. If you’re filing jointly, the amount increases to $19,050. Head of household is $13,600 and under.
- 12% if you make between $9,525 and $38,700 while filing single. If you’re filing jointly, the amount increases to $19,051 to $77,400. Head of household is $13,601 to $51,800.
- 22% if you make between $38,701 and $82,500 while filing single. If you’re filing jointly, the amount increases to $77,401 and $165,000. Head of household is $51,801 and $82,500.
- 24% if you make between $82,510 and $157,500 while filing single. If you’re filing jointly, the amount increases to $165,001 to $315,500. Head of household is $82,501 to $157,500.
- 32% if you make between $157,501 and $200,000 while filing single. If you’re filing jointly, the amount increases to $315,001 to $400,000. Head of household is $157,501 to $200,000.
- 35% if you make between $200,001 and $500,000 while filing single. If you’re filing jointly, the amount increases to $400,001 to $600,000. Head of household is $200,001 to $500,000.
- 37% if you make over $500,000 while filing single, over $600,000 while filing jointly, and over $500,000 when filing head of household.
Annual adjustments received a relatively small change this year. Previously, tax brackets, standard deductions, and other tax provisions were based on what was called the CPI-U, the consumer price index for all urban consumers. The CPI-U tracked goods and services, so it was used to change tax-related figures over time.
Now, the new tax law will use the Chained CPI. It works similarly, but it makes the assumption that a good or service becomes too much, Americans will buy a cheaper alternative. While this won’t make a huge difference this year, it has the potential to have a huge impact on taxes in the coming decade.
Higher Standard Tax Deduction
This is great news for people that decide to go with standard deductions over itemized deductions. This year, the standard deduction for those filing single is $12,000. If you’re filing jointly, the amount was increased to $24,000. Finally, head of household sits at $18,000.
No More Personal Exemption
Even though there’s a higher standard deduction, that doesn’t mean that people will be getting twice as much money back. When filing your taxes, Americans could exclude a certain amount of income from their taxable income each year. This was called a personal exemption. In the past, Americans could claim one personal exemption for themselves, another for their spouse, and another for each dependent. Well, this is no longer the case.
The government decided to make this change to try and make filing your taxes easier than ever before. While this can be a gift for those without dependents, it’s a huge hit for anyone that has a rather large family with several dependents.
Child Income Tax Doubled
Even though there isn’t a personal exemption, larger families have a bit of a reprieve. The Child Tax Credit was increased, and the credit is now refundable. This credit can be seen as much more valuable because it reduces the amount of tax that you owe dollar for dollar.
For any child under the age of 17, you can get up to $2,000 with as much as $1,400 is refundable. This means that if the parent owes no federal income tax, they will still get some money back. If your child doesn’t qualify for this tax credit because they are over the age of 17, they may still be eligible for a $500 tax credit under the new laws.
Expanded 529 Savings Plan
The 529 savings plans made it through to the new year and will see an expansion. Now, the 529 savings plans will allow those to use the funds for qualifying educational expenses at any level—not just for college. This means that the funds from a 529 savings plan can be used to help pay for your child’s private high school tuition.
Mortgage Interest Changes
Mortgage interest is still deductible, but it did receive some big changes that homeowners will feel. Now, the amount you can deduct for State and Local Taxes is now capped at $10,000. Another change is that the cap on the total deduction was reduced to $750,000.
Additionally, you can only deduct the interest on your home if you’re going to use the loan to make substantial improvements to the house, like building an addition. You cannot use the loan to pay off debt or make other purchases.
Finally, moving expenses are no longer deductible. That means that beginning in 2018, trucks, boxes, temporary lodging, and travel expenses all come out of your pocket. The only exception is for those on active duty and moving on orders.
If you’re getting a divorce in 2019, alimony is no longer deductible from the payer’s taxable income. The burden is shifted away from the one receiving the payments, who will no longer be reporting the funds as part of their taxable income.
No More Affordable Care Act Penalties
One of the best changes for the coming year is that there aren’t any penalties for not having health insurance. The only caveat is that the penalty is repealed starting in 2019. If you didn’t have insurance through 2018, you may still have to pay.
Other Removed Tax Deductions
The last changes that may impact you are the removal of tax breaks for those that experienced casualty and theft losses. Previously, you could deduct the value of items stolen from your home after being burgled. That’s no longer the case. Now, you can only deduct losses from a federally declared disaster.
Additionally, the “miscellaneous deduction” category has been removed to simplify the tax code. There used to be a long list of things you can deduct, like employee expenses, tax preparation expenses, and more. Starting in 2018, these deductions are gone.