9 Things You May Not Know About the Tax Cuts and Jobs Act
Filling out your taxes is generally not a lot of fun, but this year it may be more streamlined because of the Tax Cuts and Jobs Act.
A major change in our tax laws became effective on Jan. 1, 2018, with the Tax Cuts and Jobs Act of 2017. Most of us will first come face-to-face with these changes when we fill out our 2018 tax returns over the next few months.
To help you prepare, we’re sharing 9 major changes in the Tax Cuts and Jobs Act.
1. Elimination of personal exemptions
In the past, you may have claimed personal exemptions to lower your tax obligations, and people with big families benefited the most from this feature. However, starting in 2018, personal exemptions have been abolished.
2. Doubling of the child tax credit
The child tax credit was previously $1,000 for qualifying children under age 17. Now it is $2,000.
3. Most of the child tax credit is refundable
Previously, the $1,000 child tax credit was nonrefundable, meaning if your tax liability was zero, you couldn’t take advantage of the $1,000 tax credit. Under the new law, $1,400 of the $2,000 child tax credit is refundable, so even if you have zero tax liability, you still will see a refund of $1,400 per qualifying child (the remaining $600 can only offset taxes due).
4. Standard deductions are nearly doubling
This means more people can avoid the extra work it takes to itemize deductions. Unless your itemized deductions were twice the old deductions, you can now take the new standard deduction and have a lower tax liability. The IRS predicts that 60 percent of people who previously itemized will no longer need to.
5. Changes to itemized deductions
One reason fewer people will itemize is because of changes to some common itemized items. For example, itemizers will be limited to no more than a $10,000 deduction for state and local property, sales, and income tax. Also, people will see limits for allowable deductions of mortgage debt interest and home equity loan interest.
6. Tax bracket adjustments
The law kept in place all seven tax brackets but lowered several of the tax rates and adjusted the income thresholds at which the rates apply. The result? Many people will find they are paying less taxes on their 2018 income.
7. Fewer alternative minimum tax payers
Under the old law, about 10 million households paid the dreaded Alternative Minimum Tax. The IRS estimates this will now decrease to 1 million.
8. Moving expenses no longer tax deductible
Unless you are active duty military, you will no longer be able to take moving expenses as a tax deduction.
9. 529 plans can be used for K-12 expenses
Under the old law, funds in 529 plans could only be used for higher education expenses. Under the new law, moneys in 529 plans can be used for tuition in connection with public, private, or religious K-12 education.
As always, consult a tax professional about your own personal financial situation. Filling out your taxes is generally not a lot of fun, but this year it may be more streamlined because of the Tax Cuts and Jobs Act.
Don Milne is Financial Literacy Manager for Zions Bank.