The 2018 tax reform included many significant changes, but these five will likely impact our clients most when returns are filed next year:
- The standard deduction will double. Although this sounds like good news, remember that all exemptions are suspended beginning in 2018. This could mean a lower overall deduction from what you’ve experienced in the past.
- Withholding tables have changed, which likely produced an increase in your net pay. All employers were required to start withholding the new rates earlier this year. However, if you are under withheld for 2018, you could owe tax when your return is filed.
- The deduction for state and local property taxes is limited to $5,000 for married filing separately or $10,000 for all other statuses. This includes all state and local income tax, property tax and sales tax. Previously, there was no limit. This will have the greatest impact on taxpayers who have high property tax and paid high state taxes in the past.
- You are no longer able to deduct job-related expenses on Schedule A. Although this change will not affect every taxpayer, it could be significant for those impacted.
- If you incurred a new home mortgage after Dec. 15, 2017, the deduction for mortgage interest is limited. Under the new tax law, you can only claim a deduction for interest paid on the first $750,000 of acquired debt, down from the previous $1 million debt limit. Tax reform also eliminated deductions for interest on home equity debt.
If you begin paying attention now to changes in your income and itemized deduction limits, you could avoid paying more than you anticipated on next year’s return. While it’s likely you’ll be impacted in some way by tax reform, the extent to which it affects you depends on factors specific to you. Gather your pay stubs and sit down with a tax advisor for a quick projection of what to expect.
Blog by Erica Shaloy, Tax Director.