If you’re getting ready to work on your 2018 tax return, be aware that there are several major changes that are going to have an impact on your situation. They’re the result of a massive tax law overhaul, known as the Tax Cuts and Jobs Act, which Congress enacted in late 2017.
What can you expect to run into when preparing your return? Here are some of the most significant changes, according to tax experts:
Generally speaking, a good strategy to use prior to working on your return is to create a tax preparation list. This will help you gather together everything you or your tax professional will need in preparing the return.
Here are some things you’ll need:
What can you expect to run into when preparing your return? Here are some of the most significant changes, according to tax experts:
- The standard deduction has increased for each filing status. If you file as Single or as Married Filing Separately, your standard deduction jumped to $12,000 in 2018 compared to $6,350 in 2017. If you’re Married Filing Jointly, the standard deduction is now $24,000, up from $12,700 in 2017. Are you filing as Head of Household? Then you can claim an $18,000 standard deduction, compared to $9,350 for the previous year.
- Say goodbye to the Personal Tax Exemption. As the result of tax reform, the $4,050 personal exemption for yourself, your spouse, and any of your dependents no longer exists.
- Child Tax Credit has jumped. This credit is now $2,000 per qualifying child, as opposed to $1,000 for 2017. The child must be under 17 at the end of 2018 to claim it. The credit applies if the taxpayer claims the child as a dependent and houses the child for at least half the year. What’s more, if a taxpayer will receive a refund, the refundable portion of the credit increased to $1,400 in 2018. In previous years the credit was nonrefundable. So if no tax is owed before claiming the credit, the taxpayer will receive up to $1,400 as part of their refund.
- There’s now a cap on state and local income tax deductions. Previously, the total deduction was unlimited, but it’s now capped at $10,000. The restriction applies to most filing statuses – single filers and those married filing jointly fall under the $10,000 limit, while the cap for a married person filing separately is $5,000.
- Affordable Care Act (ACA) tax penalties are eliminated. The ACA penalties were associated with those who choose to go without healthcare coverage for the year.
- Mortgage interest and home equity loan deductions are impacted. Taxpayers who bought a home in 2018 can only deduct interest up to $750,000 in mortgage debt, a decrease from $1 million the previous tax year. And interest deductions on home-equity loans are eliminated.
- 2018 is the last year for alimony payment deductions. Anyone who was granted a divorce in 2018 can still take advantage of this tax write-off, but starting this year, new or modified divorces will not qualify for a deduction.
Generally speaking, a good strategy to use prior to working on your return is to create a tax preparation list. This will help you gather together everything you or your tax professional will need in preparing the return.
Here are some things you’ll need:
- Your Social Security number
- Your spouse’s Social Security number (if married)
- Social Security numbers for any dependents
- W-2 forms from all employers (you and your spouse, if filing a joint return) worked for during the past tax year
- 1099 forms if you (or your spouse) completed contract work and earned more than $600 for the year
- Unemployment income
- Rental property income
- Miscellaneous income (including jury duty, lottery and gambling winnings, Form 1099-MISC for prizes and awards, and Form 1099-MSA for distributions from medical savings accounts)
- Social Security benefits
- Investment income information (including interest income, dividend income, proceeds from the sale of bonds or stocks, and income from foreign investments)
- Income from local and state tax refunds from the prior year
- Business income (accounting records for any business that you own)