In the next few weeks, you’ll be gathering your 2017 income tax information, either to prepare your own returns or to hand it over to your tax preparer. What better time to think about how that same information would look for 2018?
Provisions in the Tax Cuts and Jobs Act passed in December 2017 could change your 2018 tax bill dramatically. It all depends on your current family size and make-up, income, and geography. Planning ahead can prevent an unhappy surprise come tax time next year.
Taxpayers (or their tax professionals) should review four areas where the new tax law could change their 2018 tax bill:
- Itemized Deductions – Until 2025, the new law limits several itemized deductions, including for state and local income, sales and property taxes, and home mortgage interest. Deductions are eliminated for home equity interest, non-disaster personal casualty losses, tax preparation, and investment fees. Good news for high income taxpayers — the itemized deduction phase-out is eliminated.
- Personal Exemptions and Standard Deduction – The $4,050 per person personal exemption goes away completely until 2025. That will hit some families pretty hard. It hasn’t been mentioned much, with all the talk about doubling the standard deduction. Taxpayers who find that the standard deduction is more beneficial than itemizing could still end up with a higher tax bill due to the loss of personal exemptions.
- Tax Bracket – Six of seven individual tax brackets are reduced through 2025. Most taxpayers will benefit from the new rates, but some who are currently in the 33% marginal tax bracket will find themselves in the 35% marginal bracket in 2018. This unfavorable change will mainly affect singles and heads of households with taxable income between $200,000 and $400,000.
- Child Credits – The maximum child credit increased from $1,000 to $2,000 per qualifying child. Check to see if you qualify for a full or partial credit based on your income.
Taxpayers with more complex situations, such as business owners, should consult a qualified tax professional to determine the impacts of the new tax law. For a tax professional to give you accurate and complete feedback, be prepared to discuss your current situation, and to share information about impending or planned changes. She or he will be able to use that information to project, analyze, and identify tax planning opportunities that fit your needs.
It’s tempting to get your 2017 tax filing over with and forget about next year. By taking some time to plan for your 2018 taxes now, you can avoid an expensive surprise at tax time next year.