We know that you work hard for your money and often a tax refund may be the biggest check you get all year, so we’re here to let you know how the new tax reform legislation may affect your tax refund next year.
The new tax law is the largest piece of tax reform legislation in 30 years and was signed into law on December 22, 2017. For most people, these tax changes impact tax year 2018 (the taxes you file in 2019) and not tax returns you’re filing now. Overall, the changes associated with the new tax law may lower taxes for individuals and small businesses.
Some of the highlights for taxpayers include:
So just what will these changes mean for your 2018 tax refund? Here is a break down based on your individual tax situation.
Although there was an elimination of the dependent exemption deduction beginning for tax year 2018, families with kids may see a bigger tax refund next year since the child tax credit doubled and went from $1,000 to $2,000. In addition, the amount that is refundable grows from $1,100 to $1,400. The law also adds a new, non-refundable credit of $500 for dependents other than children. Finally, it raises the income threshold at which these benefits phase out from $110,000 for a married couple to $400,000. Tax credits are a direct reduction from the taxes you owe so they mean more than a deduction that reduces taxable income.
If you claim the standard deduction you may see less tax liability in 2018 since the new tax law nearly doubles the standard deduction amount. Single taxpayers will see their standard deductions jump from $6,350 for 2017 taxes to $12,000 for 2018 taxes (the ones you file in 2019). Married couples filing jointly will see an increase from $12,700 to $24,000. These increases mean that fewer people will have to itemize. Today, roughly 30% of taxpayers itemize. Under the new law, this percentage is expected to decrease.
If you claim itemized deductions you may see fewer tax deductions that lower your tax deduction especially if you live in a state with high property taxes since the new law limits the amount of state and local property, income, and sales taxes that can be deducted to $10,000. In the past, these taxes have generally been fully tax deductible.
The law also caps the amount of mortgage indebtedness on new home purchases on which interest can be deducted at $750,000 down from $1,000,000 in current law.
If you itemize you will also see the elimination of some miscellaneous itemized deductions like unreimbursed employee expenses under the new law.
If you are self-employed or have an S-Corp or partnership you may see lower tax liability which may increase your refund since the new law includes a 20% deduction for incomes from certain type of “pass-through” entities and almost doubles the amount small businesses can expense when they purchase business equipment from the 2017 Section 179 amount of $510,000 to $1,000,000.
Because of the changes to the 2018 tax laws such as changes to itemized deductions, increased child tax credit to $2,000, the new dependent credit, and the eliminations of dependent and personal exemptions, you should file a new Form W-4 with your employer in response to the new tax law, if your personal situations changed, or if you started a new job.
The IRS is also working on revising Form W-4 to reflect additional changes in the new law, so employees can update their withholding in response to the new tax law changes. TurboTax has you covered with TurboTax Tax Caster so you can estimate your tax liability for 2018. Stay tuned for TurboTax updated W-4 calculator so you can calculate your personal allowances for your withholding from your paycheck.
Self-employed and small business owners may also wish to make adjustments to estimated taxes they pay. QuickBooks Self-Employed will help you easily figure out your estimated taxes.
TurboTax has you covered and will be up to date with the latest tax laws. If you have more questions while doing your taxes, you can connect live via one-way video to a TurboTax Live CPA or Enrolled Agent to get your tax questions answered. TurboTax Live tax experts can even review, sign, and file your return.
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The Standard Deduction nearly "doubles" but the personal exemption gets eliminated. Doesn't that mean that certain families will end up having more taxable income?
For example, we have $19k in itemized deductions and $8k for two exemptions in 2017, for a total reduction of $27k in taxable income, but with new "tax cut" plan, isn't my income reduced by only $24k, the new standard deduction?
Please explain to me how this is a tax cut, if my taxable income is going to be higher.
The biggest surprise for most people will be that they won't get a refund next year. While the intent of the reform was to reduce taxes for most people, the decision to change the federal withholding tables in 2017 is going to kill your refund.
Most people will owe less taxes, but they will also have less withheld from their paychecks. This means you get more money now, but don't expect to get more money in your paycheck today AND get a big refund at the end of the year. I think this is going to catch a lot of people off guard!
Itemized deductions have not been eliminated. There are new caps on some, like state and local income and property taxes. Your itemized deductions may or may not be affected by the new $10,000 cap.
With all due respect, this post is fairly useless. Boils down to "depending on your situation, you might pay more or less taxes for 2018."
I'm trying to calculate if we need to adjust our withholdings this year. The IRS calculator is unfriendly, as you need to know exactly what you filed. I tried TurboTax's Taxcaster, but for some reason it doesn't pull in the tax information I provided 3 months ago, and expects me to go dig up the same information.
This should be easy for TurboTax and for your customers. Why isn't it?