The Tax Cuts and Jobs Act officially went into effect in 2018, leaving many taxpayers laboring to learn new tax code before the deadline. After April 2019, some taxpayers reported a higher refund while others noticed they owed more in back taxes.
President Trump’s Tax Cuts and Jobs Act (TCJA) was the largest tax overhaul in the past 30 years. It received significant media attention with some applauding the legislation while others bitterly opposed it.
What are the most common impacts on individual filings from the Trump tax changes?
#1 Lower Tax Rate Brackets
In terms of individual filings, in five of the seven tax brackets, tax rates were reduced by the TCJA.
Unfortunately, not everyone benefited. Some taxpayers who previously would have been in the 33 percent marginal tax bracket are now bumped up to the 35 percent bracket. In the 2018 tax year, it primarily impacted singles and heads of households with taxable income between $200,000 and $400,000 per year.
#2 Higher Standard Deductions
Another change to tax law that benefited most taxpayers was the increase in the standard deduction. The TCJA nearly doubled the standard deduction amount from 2017 to 2018.
Some complained, however, that personal and dependent exemption deductions were eliminated. The shift in higher standard deductions coupled with the removal of personal and dependent exemptions primarily affected households with a lot of dependents.
#3 New Limits on Deductions
One common complaint about the new tax law is that limits were placed on deductions for state and local taxes. The same was true of new limits placed on home mortgage interest deductions.
In the past, taxpayers could itemize to deduct an unlimited amount of personal state and local income tax as well as property taxes. Additionally, any home mortgage taken out after December 15, 2017, is now subject to a reduced maximum amount the taxpayer can claim on mortgage debt used to purchase a first or second residence.
#4 Increase of Child Tax Credit
Those with children received good news from the TCJA when it was announced the maximum child credit for 2018 would increase to $2,000 per qualifying child. It also means that up to $1,400 of that credit can get refunded, even if you do not owe any federal income tax.
#5 New Credit for Dependents
Though families with a lot of dependents don’t get as many deductions from the TCJA, there is a new $500 tax credit for dependents under the new law.
However, the new $500 credit only applies to qualified dependents who are not under the age of 17. So it primarily benefits those that have older children or parents living with them.
#6 Alternative Minimum Tax (AMT)
The TCJA decided to retain the individual Alternative Minimum Tax (AMT), but the exemption deductions are much higher than before. Furthermore, many who qualified for the AMT in the past had high enough income levels to get phased out of the program.
As a result, those who struggled with the AMT in the past noticed that for the first time in 2018, they were off the hook. And those who were still subject to AMT reported owing much less than previous years.
#7 Removal of Moving Tax Breaks
One final overhaul that will affect individuals is that you can no longer claim a deduction for moving expenses. However, the deduction still exists for military personnel. Employer reimbursements for moving expenses are also no longer tax-free except for current service members.
Understanding the Tax Cuts & Jobs Act
There is no questions that the TCJA helps the wealthy, corporations, and banking institutions by lowering their taxes. But what about the average individual taxpayer? Well, it depends on your circumstances.
The TCJA is still very fresh, and many taxpayers are unaware or confused about the new tax code.
Levy & Associates represents a team of experienced, dedicated tax specialists. We are experts on the impact of the TCJA and can help answer any questions or concerns you have. We’ll help you avoid common pitfalls and take advantage of the TCJA to lower your tax liability and save money. For more information about how we can help, contact us at 800-TAX-LEVY, or visit www.levytaxhelp.com.