This is the season when the ever-changing tax regulations come into focus as the filing deadline approaches. But the biggest change will be the series of new rules which are part of the Tax Cuts and Jobs Act of 2017 put into effect for the 2018 tax year.
According to the nonprofit Tax Foundation, the new law made several significant changes to the individual income tax, including reforms to itemized deductions and the alternative minimum tax (AMT), and expanded standard tax deduction and child tax credit, and lower marginal tax rates across brackets.
They add that these changes “simplify the individual income tax for millions of households,” with the IRS estimating a decrease of 4 to 7 percent in the amount of time it takes to complete an individual return.
However, as CPA Debbie J. Freeman notes, “Simplification leads to more paperwork.” For example, the 1040 paper form has been shrunk in size but now requires you to consult up to six new schedules.
One of the biggest changes, the doubling of the standard deduction to $12,000 for singles and $24,000 for married filing jointly, was designed to eliminate the need to itemize deductions for tens of millions of Americans.
But according to Amy Wang, CPA and senior manager on the American Institute of CPA’s tax policy and advocacy team, you still need to figure out which deduction method is best for your individual situation.
“Most taxpayers won’t know which one is better until they do the math and find out which one is higher,” says Wang.
So have all the usual statements and receipts organized and ready for your CPA or tax preparer.
The text of the new tax law runs 186 pages, but if you don’t have time to read it, just be aware of the four biggest changes.
1. A reduction in tax rates. Most people (except in the 10% and 35% tax brackets) have had their rates reduced.
2. Changes to the tax bracket structure. The income criteria for all seven brackets have changed.
3. An increase in the standard deduction. It’s been doubled to $12,000 for singles and $24,000 for married filing jointly as noted above.
4. An increase in the child tax credit. The amount has increased and the number of people who can use it has been broadened.
Contribution Limit Changes
For tax year 2019, the following contribution limits were increased from last year:
•Individual Retirement Account: from $5,500 to $6,000
•Qualified Retirement Plans: from $18,500 to $19,000
Since taxes can be a significant consideration in your overall financial planning strategy, it’s always good to explore your options with a qualified tax professional. We can also help you adjust your saving and investing plans in light of the new law, based on your individual situation.