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Individual Taxation - Are You Winning or Losing with the 2018 Tax Law Changes?

Updated: Sep 27, 2020

IT'S ALMOST TAX SEASON! The big question on a lot of people's minds is if their refund will be held up with the government shutdown. Originally, it was suspected that there may be delays, but it's now being said that there won't be. It sounds like we'll have to wait to hear the final answer as we near the official IRS tax season start date of Monday, January 28, 2019. The Tax Cuts and Jobs Act (TCJA) enacted in December 2017 includes several changes that can dramatically impact the result of your tax return compared to prior years. Some of the biggest adjustments are outlined below.

Tax Rate Changes

Many tax rates have been reduced. The former 2017 rates were 10%, 15%, 25%, 28%, 33%, 35%, and 39.6%. The updated rates for 2018 are as follows: 10%, 12%, 22%, 24%, 32%, 35%, and 37%.

What this means: Most people will benefit from this by paying less in taxes. Kudos to you folks!

Increased Standard Deductions

One of the biggest advantages of the TCJA for most people is the increased standard deduction. They are as follows: Single & Married Filing Separately - $12,000 (up from $6,350 in 2017) Head of Household - $18,000 (up from $9,350 in 2017) Married Filing Jointly & Qualifying Widow(er) - $24,000 (up from $12,700 in 2017)

What this means: While the deduction is significantly higher, there are still two considerations that must be mentioned –

1. Personal exemptions have been eliminated - see next section.

2. Some taxpayers that used to be able to itemize would find it more beneficial to take the standard deduction now. While that may sound great, it might not turn out to be so blissful unless they’ve modified their payments to the IRS throughout the year in anticipation of the change.

Elimination of Personal Exemptions


What this means: You can no longer take an exemption deduction for yourself, your spouse, or dependents on your return, but with the increased standard deductions, it may actually pan out to a more favorable tax outcome for you

Increased Child Tax Credit

The maximum credit has increased to $2,000 per qualifying child (which is up from $1,000 in 2017). There’s also a new credit of up to $500 for other qualifying dependents.

What this means: A larger credit could be in store for you depending on your situation.

Itemized Deductions

The deduction for unreimbursed medical and dental expenses has been reduced to those that exceed 7.5% of your Adjusted Gross Income (which is down from 10% in 2017). The IRS expects that this will go back up to 10% for the 2019 tax year.

The deduction for state and local income, sales, and property taxes is limited to a combined $10,000 (or $5,000 if MFS). Any taxes above the $10,000 are not deductible.

The deduction for cash charitable contributions is now 60% of your Adjusted Gross Income (up from 50% in 2017).

Miscellaneous itemized deduction is suspended. Expenses that fit into this category used to include unreimbursed employee expenses, tax prep fees, union dues, investment management fees, etc and were deductible as long as they exceeded 2% of your Adjusted Gross Income.

What this means: The biggest game changer in this section is the $10,000 limit on those listed tax deductions. Many taxpayers who formerly itemized will now find it more advantageous to take the standard deduction.

Just like last year, if you are claiming the Earned Income Tax Credit (EITC) or Additional Child Tax Credit (ACTC), the IRS won’t issue those refunds prior to mid-February.

The new changes are anticipated to benefit more people than it injures, but I already know there are many taxpayers that won’t be thrilled with their results upon filing. My advice is to employ a utilitarian mindset for those folks.

Looking Ahead

If your tax outcome is favorable and you don’t expect big changes in your tax situation in 2019, CONGRATULATIONS! You may not need to make any further adjustments to your withholding or payments you send to the IRS throughout the year. If your outcome has you owing substantially, you may want to consider making adjustments especially if you are hit with an underpayment penalty for 2018. The IRS has a Paycheck Checkup tool to help you assess your situation.

Please be advised that this list is not meant to be exhaustive of all tax changes. Go here for the full list to date. I’ve discussed some of the more common ones that will have the greatest impact on most taxpayers. See, this is utilitarianism at work.

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