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The Tax Cuts and Jobs Act that went into effect on January 1st is the most comprehensive tax change since 1986. There were many changes that occurred for businesses and individuals. I’d like to spend a few moments talking about a few of the more significant changes to the individual taxpayer.
The two changes that will affect everyone relates to the increase in the standard deduction and the elimination of personal exemptions. The Act has increased the standard deduction to $12,000 for singles and $24,000 for married couples. This will be a big additional deduction for most taxpayers, especially
those who can’t itemize their deductions. It’s not much savings for those that have total itemized deductions that are barely over the new limits, especially with the loss of the personal exemptions.
Congress was really trying to make it so that most people could not itemize. They decided to limit home mortgage interest on large home loans, eliminate the deduction for home equity interest, as well as the amount of State and local taxes one can deduct. They also eliminated the miscellaneous itemized deductions which included investment advisor fees and unreimbursed employee business expenses. These changes will make it much more difficult for most to itemize.
Since Congress eliminated the personal exemption, you basically have to reduce your standard deduction by the personal exemption to really see the net effect of what you gained or loss with this tax act. One thing that Congress did do is eliminate the phase-out of itemized deductions based on your adjusted gross income, so you won’t be penalized if your AGI goes higher.
One strategy that taxpayers may use to maximize their excess itemized deductions over the standard deductions is through the planning and timing of charitable donations. You may see some people skipping annual donations and doubling them up every other year to get the maximum benefit.
Some other provisions of note are:
- Alimony will no longer be deductible, or includible in income for divorce or separation
agreements executed after December 31, 2018.
- The moving expense deduction is repealed through 2025, except for members of the armed
forces, so try very hard to get your employer to cover ALL of your expenses. The only issue now
is that all moving expenses your employer pays on your behalf must be included in your W-2.
- Congress did not eliminate the alternative minimum tax, but they did significantly raise the phase
out thresholds and bumped up the exemption amounts as well.
- Congress also eliminated the Individual mandate that penalized those that do not have health
While these are not all of the changes, these are the ones that affect most taxpayers. Also, many of the credits that were not reinstated after they ended in 2016 and 2017 where reinstated in the Bipartisan Budget Act of 2018.
Due to the significant changes this law brings, you should consult your tax advisor to see exactly how these will affect you. Thank you for listening, and if you have any more questions about this year’s new tax laws, please contact us.