10 Ways That Taxes Are Changing in 2018David Macino
The new administration is bringing many changes to the country. President Trump recently signed a tax reform bill that will make the most significant changes to taxes that the United States has seen in 30 years.
Here are 10 ways taxes are changing in 2018:
The Marriage Penalty is Almost Gone
In the previous tax legislation, whether two people were married would affect their tax bracket. President Trump’s tax reform bill prevents two people’s tax brackets from changing if they get married. The only people who have to pay the marriage penalty are couples who earn more than $400,000.
Higher Standard Deduction and Eliminated Personal Exemption
The standard deduction has approximately doubled for most filers. However, the bill has also essentially eliminated the personal exemption. Once the raised deduction and eliminated exemption are combined in a person’s taxes, there does not end up being much of a difference. Supporters of the tax bill are selling it as a reform that doubles the standard deduction so many people do not realize that the exemption negates part of the rise in standard deduction.
Parents Will Receive Tax Breaks
The new tax reform bill is increasing the Child Tax Credit, credit that is available for children under the age of 17 that meet certain qualifications. The bill doubles the credit and makes more credit refundable.
The Child Dependent and Care Credit is remaining. It gives parents the ability to deduct qualified child-care expenses. Additionally, parents can keep as much as $5,000 of income in a flexible spending account on a pre-tax basis.
Education Tax Breaks
Initially, the reform bill reduced some education tax breaks. The final version that President Trump signed into law, though, keeps more of the education tax breaks in place. It also increases the available use of funds that people can save in 529 savings plans to include levels of schooling other than college, such as private high schools or middle schools.
Changes in Mortgage Interest, Charitable Contributions, and Medical Expenses
Rather being able to take deductions on a mortgage of up to $1 million, people can only take deductions for mortgages up to $750,000. Homeowners cannot deduct any amount of interest on home equity debt.
Taxpayers can now deduct as much as 60 percent in charitable contributions, whereas previous tax regulations allowed only up to 50 percent. Donations that people make to colleges in exchange for sports tickets are no longer eligible for deductions.
Finally, the medical expenses deduction potential has been reduced from 10 percent to 7.5 percent.
Limits the SALT Deduction
Earlier drafts of the bill proposed eliminating state and local taxes (SALT). The final draft retains SALT but limits the total deductible amount to $10,000. The deductible taxes include income, sales, and property.
Some Deductions Are Disappearing
The new tax reform bill eliminates many tax deductions, including:
- Casualty and theft losses
- Unreimbursed employee expenses
- Tax preparation expenses
- Moving expenses
- Employer-subsidized parking and transportation reimbursement
Easier Tax Filing
The new tax reform bill makes it unnecessary to itemize anything for most households in the country. The vast majority of households will claim the standard deduction.
Affordable Care Act Penalties Be Eliminated
Republicans failed to repeal the Affordable Care Act in 2017, but the 2018 tax reform bill succeeds in eliminating an aspect of it. Starting in 2019, people who do not buy health insurance will no longer need to pay a tax penalty.
Inflation Is Calculated Differently
Instead of measuring inflation by the consumer price index (CPI) for urban consumers, the new tax form bill calculates inflation using a Chained CPI. Chained CPI assumes that if a consumer good becomes too expensive, consumers will stop paying for it and use a cheaper alternative.
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