The Tax Cuts and Jobs Act took effect beginning in 2018. The changes included in the act will impact the tax return you file in 2019. Many individual tax cuts will expire in December 2025. Overall, the new tax code is meant to make filing taxes less of a hassle for everyone. Here is a list of the most significant changes affecting the majority of taxpayers.
Tax Law Changes Under The Tax Cuts and Jobs Act
1. Standard Deduction Increased – Single filers can take a standard deduction of $12,000, and married couples filing jointly can take $24,000.
2. Personal Exemption Eliminated – Before tax year 2018, you could have taken a $4,050 personal exemption for yourself and each dependent claimed on your tax return. That exemption has been repealed.
3. Affordable Care Act Penalty Repealed – Beginning in January 2019, there will be no tax penalty for not having healthcare coverage. You are required to have healthcare through the end of 2018.
4. New Tax Brackets and Rates – Income tax rates are lower for most of the seven tax brackets. The top rate dropped from 39.6% to 37%, while the bottom bracket remains at 10%. The range of income included in each bracket was expanded, too. This change could mean you’ve seen a slightly bigger paycheck each pay period starting in January 2018.
5. Child Tax Credit Doubled – You can now get up to $2,000 in tax credit for each qualifying dependent. The income threshold for claiming the credit increased to $400,000 for married filers ($200,000 if you are single). Your children must have a Social Security number to be eligible. The credit is partially-refundable up to $1,400.
6. New Family Tax Credit – A new $500 non-refundable credit is available for children who are over age 17 or do not have an SSN. The credit can also be claimed for elderly and disabled dependents.
7. SALT Deduction Limited – The amount you can deduct for all state and local tax is capped at $10,000 per household. If you are married filing separately, the most each of you can claim is $5,000 per return, for a total sum of $10,000.
8. Miscellaneous Deductions Eliminated – You can’t take a deduction for moving expenses or unreimbursed employee expenses.
9. New 20% Deduction for Small Business – Pass-through entities (S-Corps, LLCs, partnerships, Sole proprietorships) may deduct up to 20% of qualified business income. Limitations to the law do apply.
10. New, Smaller Form 1040 – The new Form 1040 is a simple version of the existing form. It is the size of a postcard and is intended to replace all versions of the Form 1040. All taxpayers will use the same 1040 to file in 2019. Additional tax information will be entered on accompanying schedules. There are rumored to be six numbered schedules.
11. Alimony payment changes – If you’re divorced or separated after Dec 31, 2018, you can’t deduct payments you make for alimony. If you receive alimony, those amounts are no longer included in your taxable income.
12. 529 savings accounts: Up to $10,000 per year can be withdrawn and used for private/religious education at certain elementary or secondary schools without a tax penalty.
Click here for more information on the ways tax reform could affect you.
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