In 2017 Taxpayers received the following Standard Deductions but will see increases to these amounts in 2018. Assuming these taxpayers do not currently itemize, and will not itemize under the new standard deduction the following are some examples of how they are affected:
- Single =$6350 – Increasing to $12,000 in 2018
- What does this mean for a taxpayer with no other dependants?
- Assuming the taxpayer does not itemize, they will have a tax savings ranging from $160 or more depending on which tax bracket they fall in.
- What does this mean for a taxpayer with only one dependent and cannot file Head of Household?
- Assuming the taxpayer does not itemize, they will have a tax increase ranging from $245 or more depending on which tax bracket they fall in. This assumes the dependent is age 17 or older and is not eligible for any other tax credits (Earned Income Tax Credit, American Opportunity Credit, Retirement Contribution Credit). If the dependent is age 16 or under they may see a tax savings starting at $755, and going up with each additional dependant they have after the first dependent that is age 16 or younger.
- What does this mean for a taxpayer with two or more dependents and cannot file Head of Household?
- Assuming the taxpayer does not itemize, they will have a tax increase ranging from $810 or more depending, on how many dependents they have, and depending on which tax bracket they fall in. This assumes the dependents are age 17 or older and is not eligible for any other tax credits (Earned Income Tax Credit, American Opportunity Credit, Retirement Contribution Credit). If the dependents are age 16 or under they may see a tax savings starting at $1,350, and going up with each additional dependant they have after the first dependent that is age 16 or younger.
- What does this mean for a taxpayer with no other dependants?
- Head of Household = $9,350, Increasing to $18,000 in 2018
- What does this mean for a taxpayer with only one dependent?
- Assuming the taxpayer does not itemize, they will have a tax increase ranging from $350 or more depending on which tax bracket they fall in. This assumes the dependent is age 17 or older and is not eligible for any other tax credits (Earned Income Tax Credit, American Opportunity Credit, Retirement Contribution Credit). If the dependent is age 16 or under they may see a tax savings starting at $640, and going up with each additional dependant they have after the first dependent that is age 16 or younger.
- What does this mean for a taxpayer with two or more dependents and cannot file Head of Household?
- Assuming the taxpayer does not itemize, they will have a tax increase ranging from $755 or more depending, on how many dependents they have, and depending on which tax bracket they fall in. This assumes the dependents are age 17 or older and is not eligible for any other tax credits (Earned Income Tax Credit, American Opportunity Credit, Retirement Contribution Credit). If the dependents are age 16 or under they may see a tax savings starting at $1,245, and going up with each additional dependant they have after the first dependent that is age 16 or younger.
- What does this mean for a taxpayer with only one dependent?
- Married Filing Joint = $12,700, increasing to $24,000 in 2018
- What does this mean for a taxpayer with no other dependants?
- Assuming the taxpayer does not itemize, they will have a tax savings ranging from $320 or more depending on which tax bracket they fall in.
- What does this mean for a taxpayer with only one dependent?
- Assuming the taxpayer does not itemize, they will have a tax increase ranging from $85 or more depending on which tax bracket they fall in. This assumes the dependent is age 17 or older and is not eligible for any other tax credits (Earned Income Tax Credit, American Opportunity Credit, Retirement Contribution Credit). If the dependents are age 16 or under they may see a tax savings starting at $915, and going up with each additional dependant they have after the first dependent that is age 16 or younger.
- What does this mean for a taxpayer with two or more dependents?
- Assuming the taxpayer does not itemize, they will have a tax increase ranging from $490 or more depending, on how many dependents they have, and depending on which tax bracket they fall in. This assumes the dependents are age 17 or older and is not eligible for any other tax credits (Earned Income Tax Credit, American Opportunity Credit, Retirement Contribution Credit). If the dependents are age 16 or under they may see a tax savings starting at $1,510, and going up with each additional dependant they have after the first dependent that is age 16 or younger.
- What does this mean for a taxpayer with no other dependants?
How will my itemized deductions change in 2018?
If a taxpayer currently has the following tax deductions in 2017…
- State Income and Local Property Taxes = $12,000
- Mortgage Interest = $10,000
- 2nd Mortgage/HELOC Interest (Non-Acquisition Debt) = $3,000
- Charitable Cash and Non-Cash Donations = $2,000
- Miscellaneous Itemized Deductions (Unreimbursed Work Expenses, Investment Advisory Fees, Tax Preparation Fees, Attorney Fees) = $5,000
- Total = $32,000 for 2017
…their total itemized deductions starting in 2018 will be
- State Income and Local Property Taxes = $10,000 (Capped at $10,000 total combined starting in 2018)
- Mortgage Interest = $10,000
- 2nd Mortgage/HELOC Interest (Non-Acquisition Debt) = $0.00 (Any debt not related to the construction or improvement of the home will no longer be deductible. It will remain deductible if the debt is related to the acquisition or improvement of the property)
- Charitable Cash and Non-Cash Donations = $2,000
- Miscellaneous Itemized Deductions (Unreimbursed Work Expenses, Investment Advisory Fees, Tax Preparation Fees, Attorney Fees) = $0 (No more Miscellaneous Deductions starting in 2010)
- Total = $22,000 for 2018
- Single Filer = $22,000, since higher than the standard deduction of $12,000 (Loses $2,000s of State Income and Local Property Tax Deduction, HELOC Interest, and Miscellaneous Itemized Deductions.)
- Head of Household Filer = $22,000, since higher than the standard deduction of $18,000
- Married Filing joint Filer = $24,000 – Taxpayer will take the standard deduction since their itemized deduction of $22,000 are less than $24,000
What is the overall consensus of how the tax bill will affect every taxpayer?
As you can see there are multiple factors that go into whether or not a taxpayer will see in increase or decrease in their total taxes due to Federal in 2018. Due to fact that tax rates are being cut down for those taxpayers that are currently in the 15% bracket or higher they will see a reduction of their overall federal taxes that are due. This tax rate reduction in many cases will result in tax savings overall in excess of the tax increase resulting from the loss of the some itemized deductions and the exemption deduction. Each taxpayers situation is different, therefore the only way to assess you overall tax situation you will need to sit down with your tax professional to determine if you are positively or negatively affected by the tax bill.
Medical Expenses will still count towards itemized deductions in 2018, however they will still be subject to the 7.% Income Limitation before being able to deduction Medical Expense. If the taxpayers total deductions are less than the standard deduction we will still want to calculate their total itemized deductions in the event that the state that the taxpayer resides in offers income deductions or tax credits for the various items on their state return when not deductible on the federal return.
The bill as a whole seems to be a benefit for a majority of taxpayers. Taxpayers at the same income level cannot be compared equally because the effect of dependents and source of income on their returns affects every return differently. The only way to find out is the have us do a tax plan for your to ensure you are withholding correctly so that when you come to see us next year you are achieving the outcome desired.