The Tax Cuts and Jobs Act (TCJA) made many changes to personal returns. For example, for 2018 through 2025, the personal exemption has been suspended. This will substantially increase taxable income for large families. However, enhancements to the standard deduction and child credit, combined with lower tax rates, might mitigate this increase. Some specific areas you can review as you begin filing your 2018 return include:
Taxpayers can choose to itemize certain deductions on Schedule A or take the standard deduction based on their filing status instead. Itemizing deductions when the total will be larger than the standard deduction saves tax, but it makes filing more complicated.
The TCJA nearly doubles the standard deduction for 2018 to $12,000 for singles and separate filers, $18,000 for heads of households, and $24,000 for joint filers.
For some taxpayers, the increased standard deduction could compensate for the elimination of the exemptions, and perhaps even provide some additional tax savings. However, for those with many dependents or who itemize deductions, these changes might result in a higher tax bill — depending in part on the extent to which they can benefit from enhancements to the child credit.
Credits can be more powerful than exemptions and deductions because they reduce taxes dollar-for-dollar, rather than just reducing the amount of income subject to tax. For 2018 through 2025, the TCJA doubles the child credit to $2,000 per child under age 17.
The new law also makes the child credit available to more families than in the past. For 2018 through 2025, the credit doesn’t begin to phase out until adjusted gross income exceeds $400,000 for joint filers or $200,000 for all other filers, compared with the 2017 phaseout thresholds of $110,000 for joint filers, $75,000 for singles and heads of households, and $55,000 for marrieds filing separately. The TCJA also includes, for 2018 through 2025, a $500 tax credit for qualifying dependents other than qualifying children.
Everyone’s personal tax situation is unique. If you need advice on preparing your 2018 taxes send our tax team and email and we would be happy to schedule your consultation.
Dee Ann Creach serves as a tax planning and compliance expert for McConnell & Jones where she leads the preparation of hundreds of tax returns. With more than 30 years of experience, clients value the ability to tap into Dee Ann’s extensive experience in public accounting—which, in addition to income tax services, includes strategic family business, gift and charitable planning as well as financial consultative services. As tax manager, Dee Ann also oversees correspondence with the IRS and state governments. Connect with Deeann on LinkedIn.