Does it seem like you just took down the Christmas tree? Well, believe it or not, 2018 is half over! That means the tax year is half over, too. Only six months to avoid getting an expensive surprise when filing your taxes next year.
Doing a mid-year tax withholding checkup is even more important this year than it was before. Changes in the Tax Cuts and Jobs Act passed in December 2017 could impact your 2018 tax bill dramatically, depending on your family size and make-up, income level and location.
So what are the tax law changes that taxpayers should be aware of? Three areas are likely to make your 2018 tax bill look a lot different from 2017:
- Itemized Deductions – Deductions for state and local income, sales, and property taxes are limited to a total of $10,000. Home mortgage interest is limited on new mortgages to balances of $750,000. Deductions are eliminated for home equity interest unless used to purchase or improve a home. Non-disaster personal casualty losses, tax preparation and investment fees are eliminated. One bit of 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 is eliminated. That will hit some families pretty hard. Losing personal exemptions hasn’t come up much in the news, but taxpayers will definitely notice when filing in 2019. Doubling the standard deduction has been a huge news headline. For example, married couples filing jointly will get a $24,000 standard deduction for 2018, instead of $12,700 for 2017. Millions of taxpayers will find that the standard deduction is more beneficial than itemizing.
- Tax Bracket – Six of seven individual tax brackets are reduced. Most taxpayers will benefit from the new rates, which range from 10% to 37%. Even after calculating the impact of losing some itemized deductions and all personal exemptions, lowering the rate results in a lower overall tax for many taxpayers. However, some taxpayers who were 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.
All of these changes means that it’s even more important to check on your tax withholding and plan ahead for next tax season. Tax projection calculators are available to help determine what your new income tax bill will look like. Of course, www.irs.gov is a great resource. The Tax Policy Center also posted a tool that appears easy to use – http://tpc-election-calculator.urban.org/.
Whichever tax calculator tool that you choose, don’t wait to do your mid-year tax withholding checkup. It will be time to put up the Christmas tree again sooner than you think!