In December of 2017, the Tax Cuts and Jobs Act (TCJA) was signed into law, marking one of the biggest changes to tax law since 1986. The year 2018 has come and will soon be going, and now it’s time to start worrying about how the new law is going to affect us. We know that our tax returns are going to be different this year, but how? Most talked about are the revised tax brackets and increases in standard deductions, but what about all the other little changes? Tax law is a difficult (read: super confusing) subject to grasp, so I’m here to break down the big stuff so you know what to expect when you (/ your dad/ your husband/ your tax attorney) file your return in 2019.
Here’s something pretty cool: the tax rates are lower! Nice, right? Maybe. It all depends on how your taxable income will be affected. Some of you may take the standard deduction to lower your taxable income, while others may take itemized deductions. There is no longer a limit to the amount taxpayers are allowed to itemize, but you’ll most likely be taking the standard deduction from now on. This is partly because the standard deduction has almost doubled for everyone (yay!) and partly because the new law makes it harder to exceed the standard deduction by itemizing (boo!). Here are some tables for all you visual learners like me.
If you rarely itemize or take exemptions and credits, this is looking pretty nice so far. If you’ve got high property taxes, high mortgage interest, or a large family, you’re going to see some changes. State, local, and property taxes can now only be deducted to a maximum of $10,000, and mortgage interest deductions are limited to $750,000. If you rely on your dependents to lower your taxable income, I’ve got some bad news for you. The personal and dependent exemption has been done away with. While all of this may seem daunting, it’s looking like the new cuts will have a small positive impact on lower- and middle-income families.
This is just a brief overview of some changes you’ll be seeing come April. If you’d like a more thorough explanation of the new tax law, I found this TurboTax Article to be extremely helpful. Here’s to a high refund this coming year!
*Just a disclaimer: i am not a tax professional, just a college student seeking a degree in accounting. This article was written solely for the purpose of highlighting major tax changes, not to provide any financial advice. Please refer to tax professionals and credible sites for any tax related information and research. 🙂